By Alan Gutterman, founder and principal of Gutterman Law & Business and the blogger behind The Business Counselor Blogâ„¢
Prognosticating the issues and trends that will drive the in-house counsel's workload this year is not an easy task. With a wide scope of responsibilities and a skill set as diverse as those of the "typical" general counsel, it's hard to know what general counsel and in-house counsel will take on in 2013. But if titles like "Five steps to improve corporate governance," "Time for employers to review disaster plans" and "Technology: the biggest social media lesson of 2012" are any guide, then this list contains many of the hot-button issues for the corporate legal department in 2013.
Below, in no particular order, are some predictions about corporate governance, regulatory risks, boundaries of the employer-employee relationship and other issues that professionals in the corporate legal department may be working on this year.
1. Shareholders are restless.
Shareholder activism has been on the rise for years, as activists have sought ways to influence management or make changes to operations. In 2013, shareholders are looking for ways to assert greater control over corporate governance, such as board declassification proposals, which would allow shareholders to remove directors without cause and require annual board elections. Shareholders may also be looking to clamp down on political and other social agendas. Corporate activities after Citizens United v. Federal Election Commission have triggered more shareholder activism to curb political spending by corporations. Large institutional investors and other activist shareholders have begun proposing measures that would require political expenditures to be in line with the company's long-term objectives or to eliminate any political spending or lobbying entirely.
2. More women on corporate boards.
One board performance benchmark that is gaining attention is the improved profitability of companies with women on their boards. By the numbers, companies with women on their boards outstripped companies with men-only boards in net income growth by four percentage points, according to a Credit Suisse study. Given that companies are looking for ways to improve performance in an increasingly competitive environment, they may look no further than their own boardrooms for growth.
3. Compensation committees and consultants must be independent.
After the failures of several large banks during the Great Recession, the issue of escalating executive compensation became a hook for legislators to hang their hats on. Since compensation committees and compensation consultants who determined executive pay frequently had cozy relationships with the same executives, sections of the Dodd-Frank Wall Street Reform and Consumer Protection Act targeted these relationships in an attempt to increase the independence of compensation committees and rein in executive pay. One new regulation now requires public companies to go through a due diligence exercise for the consultants who help determine executive compensation. In cases where compensation consultants have a dual engagement with the company — they are paid a fee for advice on executive compensation as well as for other services to the company — a conflict of interest or perceived conflict of interest might exist. Public companies must also provide more expansive proxy disclosures about the nature of any conflicts of interest as well as steps companies are taking to address the conflict.
4. FCPA enforcement may ramp up after a lull.
S.E.C. and Justice Department enforcement of the Foreign Corrupt Practices Act appears to be in a lull. But that does not mean that general counsel can take their eyes off the bouncing bribery ball. Large investigations in 2012 consumed agency resources, but we may soon see some of those larger cases resolve with settlements, and more progress made on cases in the early stages of investigation, according to FCPA observer Michael Volkov. In the meantime, in-house compliance officers need to become familiar with the FCPA guidelines that were issued by the regulatory agencies late last year.
5. Companies must integrate social media into corporate workflow.
Facebook updates and tweets are no longer the sole domain of millennials. Many CEOs, executives, and investors are now posting updates and following businesses and peers on social media. Last summer, Netflix CEO Reed Hastings got in hot water for posting a Facebook update on his personal account about the number of video hours that Netflix subscribers were streaming each month — information the company had not publicly disclosed by filing with the S.E.C. In December, the company and Hastings received Wells Notices from the S.E.C. indicating infractions of fair disclosure rules. Observers are waiting to see whether the agency will change its tune on sharing public information through social media.
Social media policies in hiring may also come to the forefront. Employers have started mining social media accounts to winnow out job candidates with salacious social media histories or posts that are incongruous with company values. In 2012, state legislators in over a dozen states introduced bills that prohibit employers from requesting or requiring applicants to provide access to personal social media accounts. At least four states, Maryland, Illinois, Michigan and California, now ban employers from requesting access to personal social media accounts and passwords and this number is expected to rise in 2013 and beyond.
6. Regulators are watching employee recruitment activities.
As the economy improves, companies face a more competitive landscape for key employees and executives. Late last year, the Justice Department sued eBay alleging it had violated antitrust provisions by agreeing with Intuit not to hire or recruit Intuit's employees for at least a year. Intuit was already subject to a consent decree that the DOJ had entered into with tech companies including Google, Apple and Adobe regarding non-poaching agreements. Practitioners have raised the flag that these types of non-poaching agreements could be used in industries including health care, finance or other industries where highly skilled employees from several businesses might collaborate on joint ventures, exchange information, or network for future employment.
7. More employees may have whistleblower protections.
Protections for whistleblowers who report corporate misconduct were also enacted as part of Dodd-Frank. In an attempt to increase corporate accountability, the law provided monetary awards to whistleblowers who reported an employer's illegal conduct, along with anti-retaliation provisions to protect the whistleblower's job. Recently, judicial decisions have arguably expanded the definition of who is considered to be a whistleblower, and the methods by which they can provide information to the S.E.C to be protected under the law.
8. Cyber security is going main stream.
Corporate hacking, data breaches, risks to intellectual property and trade secrets, and the rise of cloud computing have combined to bring cyber security to the forefront for many corporate security and corporate legal departments. In the first weeks of this year, the New York Times and Twitter have alleged that they were the victims of hacking — these are just a few examples of known cyber attacks in 2013. But cyber threats come in many ways, shapes and forms. A company laptop is stolen from an employee's vehicle or compromised while the employee travels abroad. A jump drive containing customer lists, proprietary data or trade secrets is packed into the moving box of a former employee. An employee opens a third-party's email containing malicious code. These are just a few cyber threat scenarios that keep chief security officers up at night.
9. Sea changes in disaster preparedness.
Hurricane Sandy and its aftermath served as a difficult reminder of the need to take steps to prepare for disasters and emergencies. Ensuring that a business is adequately insured is just the tip of the iceberg for in-house counsel. Some companies task the general counsel or in-house counsel with analyzing and mitigating risks to the business, including the risks posed by serious weather events, changing climate, and the possibility that at least part of the losses sustained in a storm will not be covered by insurance. Disaster preparedness also includes planning for business continuity and planning for employees' and customers' safety and security during and after a disaster or emergency. Annual testing and updating disaster plans is a best practice that many businesses can no longer afford to skip.
10. Spending more time on business matters and running the legal department.
The ACC's Chief Legal Officers 2013 Survey released in February identified three important business priorities for the general counsel: gathering information about company activities that may have legal implications; keeping management up to date on legal and regulatory development that might affect business decisions; and finding ways to stay current on changes in the law. In addition, pressures continue to escalate with respect to controlling legal costs and this means investing time and effort to monitor and reduce outside legal costs and manage new staffing models for corporate legal departments that include, for example, more reliance on contract attorneys and non-law firm vendors. Thankfully, general counsel, in-house counsel and others in the corporate legal department will probably not have to deal with every one of these issues this year. But even the best in-house counsel cannot dodge every risk associated with corporate governance, regulatory oversight, litigation and unexpected events. We hope that this list helps you to mentally prepare for what is in store for your company in 2013.
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