David, thank you so very much for joining me. Back in the spring just as lockdown began, you did an interview with my colleague, Erica Salmon Byrne. You gave some advice for how companies should be activating their crisis response plans to deal with the unprecedented shift to remote work and social distancing. How would you grade the corporate response overall?
David Newman, Morrison & Foerster
Thanks for the great question. It’s hard to generalize across so many industries and circumstances. Certain sectors have been very hard hit, and no crisis management plan was going to change the fundamentals that are creating challenges in those sectors. Overall, my sense is that companies across many industries have performed better than many, myself included, expected in terms of their overall crisis management approach.
All that said, this crisis has really unfolded in phases. The first phase involved a dramatic shift to remote operations, an almost-complete shutdown of certain industries and sectors, and questions around labor and HR issues. Close behind that came initial questions of contract law and interpretation.
The second phase, which is still continuing, involves longer-term planning and risk management, questions around access to capital, supply chain disruptions, and how to brace for longer term changes in customer behavior and in the marketplace, as well as privacy and data security. We did an impact survey of GCs, and we’re seeing a lot of the attention now on those questions. Ultimately, I do think there’s going to be a long tail for a lot of these issues and there continue to be some very long-term and fundamental challenges. If you look at the front page of the New York Times any morning, you’ll see stories about corporate mergers that have fallen through, or industries on the brink of financial collapse. There are very significant, long-term changes in customer behavior happening.
That’s all to say that the crisis is still happening and now you are seeing a different kind of crisis response. It’s more of a slow-moving crisis, in some respects, than the rapid changes that we saw in March and April when companies had to scale back. You’re testing different aspects of the crisis thinking. It’s less about being very operationally nimble and making very quick risk-based judgements, and much more about how companies are able to weather what now is clearly going to be a multi-year challenge in many industries that is going to test their creativity and their ability to position their business to navigate so much uncertainty.
Were there some common threads that you could see, given your expertise in crisis management, among companies who managed to pivot extremely adeptly in the middle of so much uncertainty?
I think you saw a couple of factors that allowed companies to do better than their peers. Obviously, this crisis affected industries very differently. I think one key thing is leadership, having a CEO who is able to communicate a consistent message quickly and effectively to a broad range of stakeholders.
A second is companies that are able to make informed, risk-based judgments in very short timeframes. What we have seen is companies that are accustomed to being very low risk in their approach to legal and business risk, having to choose between options with a lot of risk. I think the companies that have been able to make the best decisions for themselves are companies that were successful early on in creating a crisis management structure that brought to bear all of the relevant stakeholders quickly, so that people felt empowered to raise concerns.
Another area that I think has distinguished some companies has been those that provided their leadership with sober analysis from experts. There’s obviously a lot of noise and uncertainty in terms of the predictions and the models. I think companies that had scientific experts or consultants who gave them at least the best understanding at the time did better than others where people jumped on the latest headlines. The long-term nature of this has been something of a surprise to some businesses, but for others was never really a question because most medical experts predicted that we would be more or less where we are in the United States, given the fundamentals of the virus and also the way in which the United States was responding.
One other issue that I would say is under appreciated has been privacy and data security. We’ll continue to see incredible stress in this area just given the shifts that we’ve seen to remote operations. Companies that took that seriously, and they made big investments in their IT infrastructure, are just much better positioned right now.
We haven’t yet seen much government scrutiny and enforcement, but I think it’s coming. Companies that approach decisions with that in mind are going to be better served in the long term. There will eventually be scrutiny of, for example, the use of government assistance programs , compliance with legal regimes, FCPA or SEC obligations, things of that nature.
Back in that interview with us in the spring, we talked about the likelihood of a future wave of pandemic related force majeure litigation. Did that wave of litigation materialize, or do you think it’s still likely to?
We’re certainly seeing lawsuits that are calling on courts to decide force majeure-related questions of contract performance against the backdrop of not only the pandemic, but also government policies, stay at home orders, and restrictions on operations. So far though, we’re not seeing the level of litigation that many, myself included, had predicted. We did an internal survey for a client recently and found significantly less in the way of litigation than you would have expected.
My sense is that part of the story there is that so far businesses have decided that the better course is to work out negotiated resolutions and to muddle through negotiating temporary changes to supplier agreements, paying less in rent, and so on rather than to escalate disputes to full blown litigation. Especially given the degree of uncertainty and how long litigation takes to reach an outcome, I certainly understand that.
I will stress that this event is still very new. I envision there will be a long tail on many of these disputes, and we have a long way to go in terms of the statute of limitations and when litigation would need to be filed. Long after the public health emergency has receded, I would expect to see litigation on numerous fronts when businesses are not able to work out their agreements in a negotiated way.
We’re now six months into social distancing measures. Companies have shifted from thinking these changes were temporary to understanding that many may end up being permanent. What temporary measures have you seen companies making permanent in terms of how their legal teams operate?
For legal departments in particular, my sense is that there’ve been a number of takeaways from this experience. The first, which we have seen in the law firm world as well, is that lawyers can operate pretty effectively in a remote environment, and I see that as a trend that’s likely to continue long after the pandemic is behind us. Lawyers have also become much more integrated in crisis response planning than they were previously, and are being asked to provide not just legal judgements, but risk-based advice in a way that is integrated into broader business risk planning.
I think teams are also getting more sophisticated in terms of how to pull off changes at a pace and scale that, prior to the crisis, would have given even the most grizzled in-house veteran a lot of heartburn.
One thing that is probably not going to continue in this way is hiring and onboarding. I’ve found there’s a very big difference between managing an existing team of colleagues that I’ve known and worked with and trying to onboard new people and reinforce the culture and structure that we have at Morrison & Foerster.
Another area that has been a challenge is conducting internal investigations. I work on a lot of cross border investigations, and as everyone has, we’ve been doing the best we can with virtual interviews. At the end of the day, there’s a lot of value in being able to meet someone face to face, to ask them questions, and read their body language, and have them see your body language, and to put documents in front of them. Although I think you’re seeing practitioners getting better at that, and you’ll probably see fewer in-person interviews and a greater reliance on Zoom and video interviews when this is all over, I do think that in-person interviews will continue to be the gold standard in significant investigations.
When I asked the question, investigations were definitely the first thing that came to my mind. There’s nothing that can really fully replace being able to do a site visit and speak to people one-on-one and examine the relevant documentation.
That’s absolutely right. Historically so much of your ability to understand the situation comes from not just sitting down for the one interview, but being able to spend a week onsite talking to different people. Also, I think that the dynamic is just different when you’ve never met someone before, and you have to interview them for the first time. I think there’s a trust, there’s a body language that comes from being in-person, that’s just hard to replicate.
We touched on this a little bit earlier, but now that the dust is settled, some companies are rethinking their crisis response plans in light of how well they managed to respond to COVID and how nimble they were. What lessons should companies learn from the last six months, and how should they apply them towards future crisis planning?
I think the headline here is that a lot of companies are waking up to the fact that they are exposed to these systemic global risks in the near term in a way that I think they hadn’t fully appreciated. I’ve had companies hire us, engage us to go back over their crisis response plans, and update them based on some of the lessons learned.
Experts can be very important. In my experience, the most sophisticated experts acknowledge uncertainty. To pick one example, you saw initially I think there was much greater concern about infection due to contamination of surfaces and due to contact with kind of infected areas and spaces. Over time, the expertise began to coalesce around the idea that the main source of infection is typically person-to-person contact, and to make distinctions between indoors and outdoors, that sort of thing. There’s a lot of value in having experts who can give you kind of sobering predictions over what things will look like six months, and a year from now, and let you plan against those contingencies. There’s a lot of value in seeing from this crisis who needs to be in the room.
The most critical part, I think, of crisis response is having the right people in the room making decisions, having the right framework for who’s accountable, who needs to be consulted, and who is responsible for decisions. A lot of companies are learning who who needs to be in the room, people who historically have been left out, whether it’s your chief information security officers, your legal and compliance executives, some of the folks on the operation side. I think an appreciation for those discussions is going to have to be built into lots of future planning.
Then, the last thing I would say is that a lot of companies are having to communicate to their customers and employees big changes in very short timeframes. I think that is causing a lot of them to be a lot more thoughtful about how they communicate, about how to convey their values and the empathy that they feel for the situation, which is often a key part of having that message land correctly.
Just to highlight—improved communications, improved cross functional collaboration, and a better appreciation for the role of experts and a greater sensitivity to systemic risks. To me, those are the big lessons learned from this experience.
Specifically for our audience of ethics and compliance folks, if they found themselves more on the outside than they would have liked to have been for this crisis, how would you advise them going about making sure that that doesn’t happen next time? Getting into the room where these conversations are happening?
That’s a great question. I would hope that this crisis has given companies an appreciation for the fact that responding in a way that is consistent with their values is a crucial aspect of being successful. When there’s so much legal uncertainty, when there’s so much business risk, one thing that we emphasize consistently, and Miriam and I spoke about this in the earlier podcast, is going back to what your values are, why you exist as a company, what your employees and customers expect of you. My sense is that many companies now appreciate that even more.
Another piece of it that I do think is going to only become more salient is the government enforcement and oversight piece. Thus far, understandably, everyone has been focused on the public health risk and the operations challenges. As there was in most previous crises, I think there is going to be a long tail of government enforcement and scrutiny, especially around how government funds were spent. All of the recipients of government assistance programs, and also health and safety issues, you’re going to see scrutiny of those issues. Statutes of limitations are quite long. I think you will see continued government scrutiny and questions over how companies, for example, spent PPP loans or CARES Act funding, in the same way that you saw in the wake of the 2008 financial crisis a long tail of enforcement and scrutiny over the government assistance programs. Companies that had a compliance personnel, and that empowered people to raise questions and concerns, are going to be much better positioned in that environment.
Any final thoughts about what lies ahead?
I think everyone needs to watch out for fatigue. While we are all personally and professionally ready for this to be over and to be on the other side, recent reports that 22 states are experiencing an uptick in cases. The next phase will likely be when there is a more effective therapeutic or vaccine that’s introduced. That will create a host of new challenges and new legal questions. I think everyone needs to be careful, to keep their vigilance and their energy up.
It’s important to stress that there continues to be quite a bit of uncertainty. While there seems to be a narrative coalescing that we will have, in the next few months, a vaccine or some other medical breakthrough that will put us on the other end of this, the experts I talked to indicate that there’s a range of scenarios in terms of how effective and how much of a sea change that development will be. Months from now, we may continue to have to operate in a very different way than we did traditionally.
About the Expert:
David Newman has significant experience advising clients on crisis management. Prior to joining Morrison & Foerster, David held several key posts at the White House, including serving as Special Assistant and Associate Counsel to President Obama and in multiple positions on the staff of the National Security Council. Throughout his tenure at the White House, he played a central role in coordinating the Administration’s response to domestic and international crises and advised on a broad range of legal and policy matters affecting the federal government. This included serving as Chief of Staff to the Office of the Ebola Response Coordinator during the Ebola outbreak in 2014.