A whole lot has changed in the last seven months, but one thing that seems to remain constant is a common desire to do something—anything—to make a difference. Many lawyers, and all judges, are lucky enough still to have jobs and meaningful work, but we are surrounded by people who don’t. Many individuals and families in our communities that always expected to be able to pay their bills now find themselves unable to do so. Sometimes, those bills are the monthly rent. And sometimes landlords who no longer are able to collect the monthly rent are unable to pay their mortgage and real estate taxes, perhaps for the first time ever.
Of course, individuals and families are not the only ones who may not be able to keep up these days. Small businesses are also struggling; you can see it on a socially distanced walk through any downtown area, whether in my local neighborhood of Brooklyn Heights or a two-stoplight town in a rural community. Many businesses are struggling to hang on, navigating a complicated path to resuming operations safely. Others have shut down, at least temporarily. Some businesses are already lost, with their oval “OPEN” neon signs replaced by large “FOR RENT” signs.
What does any of this have to do with pro bono? The answer is, “a whole lot, in a lot of ways.” Pro bono representation of an individual or small business that otherwise would not have access to legal advice always makes a difference. Not just usually, but always. As we face a triple pandemic of a public health emergency, a significant economic downturn, and a historic national reckoning with the plague of institutional racism, it could not be more important for lawyers individually and the legal profession as a whole to step up to the challenge of providing adequate legal services to those who cannot find or afford them, for so many reasons. Here are just a few.
First, it seems likely that an unprecedented number of individuals won’t be able to pay their monthly bills, including their rent or mortgage. Many states, including New York, have adopted moratoriums on evictions, but these will soon expire. It’s bad enough not to be able to pay the rent or to miss a mortgage payment (or two). But it must be terrifying to face that situation and to have no one to help you identify your options, negotiate with your landlord or the bank, and find the best path forward. Pro bono counsel can help.
There’s another party to each of these relationships: large landlords and mortgage lenders who are well represented by legal counsel. I see many situations in my virtual courtroom where those counsel truly rise to the occasion and embrace a problem-solving approach. After all, a good tenant who has been furloughed, but has good future prospects, may well still be a fundamentally good tenant. The temporary disruption to that landlord-tenant relationship may well be a solvable problem.
However, not every landlord is a large, well-heeled (and well-represented) corporation. Some are family businesses. Much urban housing is small, perhaps a mixed-use building with a few residential and commercial units. Maybe the owners live downstairs and rent one or two floors upstairs, and have their own mortgage to pay, not to mention real estate taxes and utilities. And maybe the owners have never missed a payment or even considered how to respond to a tenant—and neighbor—who can’t pay the rent. Maybe that’s also a solvable problem. Again, pro bono counsel can help.
What about a job loss? News reports tell us that record numbers of individuals are seeking unemployment benefits. What access do they have to federal and other benefits programs designed to sustain businesses through these times? Access to these benefits may require fluency in legal language that comes naturally to lawyers, but not necessarily those who are in need. When a process is frustrating, those who need it most may just give up—and give up hope too. Here as well, pro bono counsel, fluent in the law and not likely to be intimidated by an administrative process, can help.
Perhaps most important, what about that intangible sense that someone—anyone—is on your side? That someone thinks that helping you is their job, and not the other way around? I recall representing pro bono clients in my practice days and seeing the transformative effect of simply greeting them at our firm’s fancy reception desk, walking them to a conference room, asking how they take their coffee or tea (and making a mental note to remember it for the refill), and listening to their narrative until they were done with the whole story, until the answer to the question, “can you tell me more about that?” was a smile and a shake of the head, just as if they were the senior investment banker on the big deal that was headed to litigation. Whatever else that client knew by the end of our meeting, they knew for sure that someone was absolutely in their corner and on their side. Pro bono counsel can do this, too, and so much more.
These are tough days and tough times. More than ever, lots of people and small businesses need recognition and assistance with solving their problems. Some of these problems are existential. Pro bono counsel can help. Please don’t wait—whether it will be your first or your hundred-and-first pro bono case, someone needs your help. Yes, yours. And soon.
The COVID-19 pandemic has made online dispute resolution (ODR) a mainstream feature of appropriate or alternative dispute resolution (ADR). Historically, ODR tended to be used for cases where the cost of in-person meetings or hearings was impractical, or by parties enthusiastic about the use of technology. Now, with the limited ability to travel and hold in-person meetings, ODR has become a necessity.
Parties reluctantly adopting ODR will find it has several benefits, such as being less expensive, greener, and more flexible and convenient for convening parties in disparate locales around the world. On the other hand, ODR results in the loss of in-person interaction that can be critical for building trust and rapport. In addition, some parties may have challenges using or accessing technology, and there is greater risk of unauthorized behaviors, such as attempts to record proceedings or include a third party without permission.
Although ODR can dramatically reduce the difficulty and cost of resolving international disputes, having a California-based neutral meet online with, say, Tokyo- and London-based parties comes with its own tribulations. Where multiple time zones are involved, there may be only a few hours of traditional business time available.
As neutrals with experience mediating and arbitrating with parties located abroad, we have put together this list of three tips to keep in mind.
1. Do More Asynchronously
Give serious consideration to whether an online meeting or hearing is really necessary, and if it is, how it might be made more time efficient. For example, getting the parties to agree to exchange mediation briefs with one another can help ensure that both sides are thinking about the same issues at an early stage. Holding premediation caucuses with each side can be particularly effective because it allows the mediator to master the factual and legal background in advance and identify information gaps that may need to be addressed prior to the main session.
A mediator may also stagger a mediation so that a first party joins online before the second. This can help to avoid the second party sitting around waiting for the mediator to complete an initial discussion with the first party. Of course, mediators should be cognizant that different parties may have different levels of sophistication and familiarity with the process, and should avoid the appearance of giving preference to one party as a result of staggered joining times.
In arbitration, ex parte discussions are generally not allowed, but it may still be possible to simplify or minimize hearings. For example, a live evidentiary hearing is not necessary in many cases, and discovery disputes and motions can often be heard solely on the documents—something to which parties based in civil law jurisdictions will be more accustomed. Another common time-saving device in international disputes is to submit all direct testimony in the form of witness statements and to reserve hearing time for cross-examination. Using a chess-clock system can also help the proceedings stay on track, especially given that countdown timers are more readily visible on a computer screen than in a hearing room.
2. Consider Physical Settings
Neutrals should discuss ODR environments with the parties in advance. This should not only include obvious points such as the prohibition on the presence of unauthorized parties or the recording of the meeting, but also the importance of having a stable internet connection and a home or work environment free of distraction to the extent possible. In the case of mediation, consider in advance whether you wish to speak with the lawyer separately from his or her client. Lawyers and clients often Zoom in together from the same physical space, but this makes it difficult to speak with the lawyer about client control or other issues that would best be discussed separately.
Due to pandemic-related restrictions on movement, a party may be forced to participate in an ODR proceeding with a less than ideal background; therefore, the neutral should make an effort to help resolve this in advance or discuss accommodations. Neutrals should lead by example and ensure they have a stable online connection together with a nondistracting background. Virtual backgrounds can sometimes be distracting, especially when combined with movement.
3. Be Sensitive to Local Conditions and Expectations
No one wants to start a meeting at 4 a.m. or 10 p.m., but that may be the unfortunate necessity of international ODR. Neutrals should be aware of the local times of all participants, and where meetings or hearings on multiple days cannot be held at a mutually convenient time, the time should rotate to avoid disadvantaging any particular party.
Consistent, high-quality internet service cannot be taken for granted in many countries. As a result, parties might experience difficulty accessing the meeting, or their connection might be compromised in ways that make it difficult for others to understand what they are saying. To the extent possible, conduct a test prior to a hearing and give parties the option of appearing by telephone or with their video turned off.
The neutral should also check with the parties in advance on their preferences and availability, being sensitive to local norms. We can think of examples, particularly in developing countries, where parties sometimes have unexpected flexibility to start early, or unusual requirements to end early, in order to avoid long commute times caused by infrastructure constraints. In addition, not all countries observe daylight savings time, and some switch to and from daylight savings time on different days. If the local time changes between when a meeting is set up and when it will occur, it is possible that a party (or the neutral) will show up an hour late. Applications like Outlook and Google Calendar can help prevent this outcome by automating an otherwise error-prone process of calculating time differences.
Systemic racism continues to be embedded in every fabric of our society and, in light of recent events, the world can no longer ignore the disproportionate impacts on African-American and Black communities stemming from systemic racism. In response to the deaths of George Floyd, Ahmaud Arbery, Breonna Taylor, and countless other African-Americans, the leadership of the Business Law Section (“Section”) of the American Bar Association issued a statement in support of Black Lives Matter and to stand, without presumption, in solidarity with the Black community and with all people seeking an end to racism and intolerance. The statement reaffirms the Section’s fundamental commitment to diversity, inclusion, and social justice, and names the Section’s commitment to redouble its efforts to eliminate systemic racism and to advocate for needed legal reforms through the power of business law, business lawyers, and business court judges.
Under Model Rule 8.4(g) of the American Bar Association Rules of Professional Conduct (the “Rule 8.4(g)”), it is professional misconduct for a lawyer to engage in conduct that the lawyer knows or reasonably should know is harassment or discrimination on the basis of race, sex, religion, national origin, ethnicity, disability, age, sexual orientation, gender identity, marital status, or socioeconomic status in conduct related to the practice of law.
Before the adoption of Section (g), Rule 8.4 already prohibited misconduct related to the practice of law, including violating or attempting to violate the rules, committing certain criminal acts, engaging in dishonesty/fraud/deceit/misrepresentation, engaging in conduct prejudicial to the administration of justice, communicating an ability to influence improperly a government agency, or helping a judicial officer to engage in unethical conduct. Section (g) added to the concept of misconduct, but specifically states that it does not “limit the ability of a lawyer to accept, decline, or withdraw from a representation in accordance with Rule 1.16. This Paragraph does not preclude legitimate advice or advocacy consistent with these Rules.”
Section (g) helps the legal profession by helping with public perception. The community will benefit from a legal system that is fair and unbiased. A positive public perception of an unbiased system assists the operation of the courts and the practice of law. The section also helps lawyers by providing clear definitions and parameters of what is prohibited and setting out guidelines and comments to protect the operation of law practice and right to free speech, thought, association, and religious practice. Consistent rules from jurisdiction to jurisdiction also aid legal practitioners and their clients engaging in interstate business.
Despite the positive benefits of the Model Rule, in the two years following the rule, Vermont was the only state to officially adopt the rule. Several states had either formally or informally declined to adopt or consider adoption. The objections to the rules ranged from “religious liberty” objections to more academic and politically philosophical objections.
In light of current events, including the deaths of George Floyd, Ahmaud Arbery, Breonna Taylor, the push for states to adopt the Model Rule has resurfaced. On July 15, 2020, the Standing Committee on Ethics and Professional Responsibility issued (“Formal Opinion”) offering guidance on the purpose, scope, and application of Model Rule 8.4(g). The Formal Opinion addresses many objections to the adoption of the rule by outlining several representative situations for application of the rule. The Formal Opinion again encourages states to adopt the rule, stating, “Enforcement of Rule 8.4(g) is therefore critical to maintaining the public’s confidence in the impartiality of the legal system and its trust in the legal profession as a whole.”
Anti-racism is the active process of identifying and eliminating racism, and this is a call for action for the legal profession to not stay silent or passive in this movement when the Section has committed to advocate for the elimination of systemic racism. The legal profession must take action to combat the imbalances within the legal profession. The following are some actions that the legal profession can take to address racism and its effect:
Education. Achieving equity requires understanding not only the current experience of marginalization and oppression but also the broader social structure and how a history of lost opportunities and disenfranchisement have widened the race gap. A lack of education and understanding contributes to bias, which in turn creates barriers and impedes the retention and advancement of diverse lawyers.
Improving Systems to Reduce Bias. Unconscious bias training at regular intervals should be provided in the workplace. This training is especially important for those in interviewing and hiring positions and decision-making roles for promotions and advancement opportunities. Existing processes should be examined to see how bias affects staffing and advancement. For example, assessing whether the work allocation system is based on objective merits whereby technical skills, judgment, and work ethic will earn placement on challenging, high-profile, and career-advancing files, or whether the system leaves room for subjective preferences based on soft skills and who “fits” in with the team.
Culture. Key support comes from top-down. Leadership in the workplace should commit to creating a culture where all members can be their authentic self and to taking active and meaningful action to address systemic racism within the legal profession.
Assessing Data. In-house counsel who are decision-makers when selecting which law firms or service providers to retain can request data related to the demographics of the lawyers at the firm to assess whether the firms are meeting diversity benchmarks and metrics. In-house counsel can also engage in continuous review of existing relationships to determine whether diverse lawyers are billing on their files and in lead counsel roles.
Each of us in the legal profession has a role to play in eliminating systemic racism. Lawyers are advocates at the forefront of change, so let us all take steps in advocating for equity and justice within our profession.
Reopening a business during the pandemic is essential and inevitable, but it will certainly be a daunting process that will require consideration of how workers can be brought on board safely, how customer concerns will be addressed, and how everything can be done in a way that allows the company to survive financially.[1] Larger companies have been investing significant amounts of resources on designing and implementing their reopening plans; however, small businesses don’t have the same resources but still need to address all of the same challenges. In this article, we’re going to take a look at how recommended “big company” strategies can be retooled to meet the needs of your small business clients.
First of all, your clients need to have a reopening plan that takes into legal and regulatory requirements and the specific needs and expectation of their workers. While the owners should be responsible for collecting all the necessary information, creating the plan should be a “family affair” that includes representatives of all of the company’s departments and activities. It is essential to have input from a group of employees who can express the divergent concerns that will inevitably arise in the workforce including views on remote working and scheduling and concerns about preexisting health conditions that increase vulnerability to the virus and caring for family members. For the smallest of businesses, this means everyone can be involved. If that’s not feasible, make sure that the team members are well-connected to other employees and also make sure that there are other means for all employees to provide input and suggestions and submit concerns (e.g., an anonymous hotline).
Each plan will be different; however, reference should be made to guidelines released by federal governmental agencies such as the Centers for Disease Control and Prevention (e.g., CDC Guidance for Businesses and Employers), Occupational Safety and Health Administration and Equal Employment Opportunity Commission, state and local governmental bodies, and any industry-specific protocols and guidance issued by nonprofit and inter-governmental organizations such as the Business & Human Rights Resource Centre, the Institute for Human Rights & Business and the OECD Centre for Responsible Business Conduct. If one exists, the company should participate in any group of similar businesses that may have been formed to share best practices on how to respond to the virus. This can be particularly valuable for smaller businesses that lack the resources for creating a robust plan on their own, but care must be taken to implement suggestions in a manner that is reasonable given the size of the enterprise.
When developing and implementing the plan, the owners should not only involve you, as their attorney, to explain legal requirements and risks, but also secure guidance from workplace health and safety consultants who can assist on preparing the workplace. The plan needs to cover protecting the workspace and lay out the details of a new workplace that is configured to address and reduce the risks associated with the virus. Among the issues and questions that need to be considered are:
The company’s policies regarding telecommuting, including how the company intends to monitor work hours and performance of employees while they are working outside the office
Social distancing, personal hygiene, use of masks and other personal protective equipment, reconfiguring workspaces, and cleaning
Managing and protecting common workspaces such as elevators and breakrooms
Manipulating work schedules to reduce crowding in the workspace
Health checks, which should be done by persons who have been properly trained and based on legal advice regarding the types of information that employers can collect from employees, how that information can be used, and how it should be protected to respect workers’ privacy rights
Protecting employees against risks associated with third parties entering the workplace (e.g., providing that the company’s policies apply to all visitors and requiring that outside sanitation teams follow safety protocols)
In addition to protecting the workplace, consideration needs to be given how and when the available worker talents are deployed. Companies need to consider when they will reopen for business and what activities will be required in order to provide the services that will actually be purchased by customers and clients. The answers to these questions will dictate which of your client’s employees are absolutely necessary to conduct business. Once that group has been identified attention can turn to the best way to deploy them. Can some of them work remotely? Can the company offer flexibility in terms of timing to those employees who must be in the facility to carry out their job activities? Are there any known risks associated with likely worker commuting patterns, such as the need to take long trips on public transportation? Which of the employees have special issues that need to be considered, such as the need to care for children and other family members or legally-protected characteristics and conditions such as age or disability? The company needs to be prepared to comply with reasonable requests for accommodations in a consistent manner and assist workers with exercising their rights related to extended leaves and childcare obligations. When making decisions about which workers to bring back, care must be taken not to act in a manner that might be seen as discriminating against particular groups (e.g., women, workers from certain racial or ethnic groups, or people known to have pre-existing health problems).
The company also needs to have a plan in place in advance to respond to news that an employee has symptoms of the virus or that a member of an employee’s family has virus-related health issues that require that the employee take time off from work to assist with care and maintenance of the household. When these types of situations arise, the company must act carefully but compassionately and document the response following consultation with applicable federal and state laws and regulations related to maintaining confidentiality of an employee’s health situation and sick and family leave. The legal requirements for paid sick and family leave need to be understood, particularly exceptions for smaller employers and for certain types of employees; however, employers may decide to offer more generous benefits. Whatever approach is taken, the rules must be clear and transparent so that employees know when they can leave the workplace due to illness and what they can expect from the company in terms of pay, benefits, and criterion for returning to the workplace once the personal health crisis has passed.
Deliberation, communication, patience, flexibility, and compassion are the essential elements for any plan that your small business client has for reopening its workplace during the pandemic. Trust is essential during this whole process, and company leaders need to be committed to transparency and consistently communicating with workers, customers, and others impacted by the company’s decisions and operations. Assisting clients in reopening in ways that are compliant with laws and voluntary standards of social responsibility is both a challenge and an opportunity for you as a business counselor. Small business owners have been devastated by the economic and social impact of the pandemic and many have understandably lost faith in the ability of their elected officials to provide support and clear guidance.
Business attorneys can play a unique role in filling in the gaps for their clients, serving as advocates for their causes and providing resources that will be valuable to all members of the community. For example, lawyers can collaborate with local bar associations to provide tools and tips for small business owners in the online world such as compiling a list of frequently asked questions and answers for owners accompanied by links to government resources. Now is also the time to visit small business owners in their communities—safely of course—to be sure that the valuable information that you have gets to the people who need it. However, in order to that it is essential that you become and remain informed about developments and there are comprehensive resources available from sources such as Practical Law (Business Reopening and Return to Work Checklist) and FindLaw. This is not something that will simply “disappear”: it is a long-term issue that you will need to integrate into your overall approach to serving you small business clients.
[1] Alan S. Gutterman is the Founding Director of the Sustainable Entrepreneurship Project (www.seproject.org), a California nonprofit public benefit corporation with tax exempt status under IRC section 501(c)(3) formed to teach and support individuals and companies, both startups and mature firms, seeking to create and build sustainable businesses based on purpose, innovation, shared value and respect for people and planet. Alan is also currently a partner of GCA Law Partners LLP in Mountain View, CA and a prolific author of practical guidance and tools for legal and financial professionals, managers, entrepreneurs and investors on topics including sustainable entrepreneurship, leadership and management, business law and transactions, international law and business and technology management. He is the Co-Chair of GP Solo’s Business Law Committee and co-editor and contributing author of several books published by the ABA Business Law Section including The Lawyer’s Corporate Social Responsibility Deskbook, Emerging Companies Guide (3rd Edition) and Business and Human Rights: A Practitioner’s Guide for Legal Professionals (Forthcoming Fall 2020). More information about Alan and his work is available at the Project’s website and his personal website. A longer version of this article was originally published on May 20, 2020 on the website of the Sustainable Entrepreneurship Project (which includes additional information on sources and other resources).
The credit reporting system is an integral part of the fabric of consumer credit in the United States. Credit scores, derived from data provided to credit reporting agencies, from creditors of all shapes and sizes, dictate whether a consumer can obtain credit and how much that credit will cost. As such, there is a need for the data furnished to be accurate and complete to ensure the integrity of the system. Enter a global pandemic due to the new coronavirus (“COVID-19”) with businesses shuttered around the country. People have been furloughed, laid off, or otherwise left jobless and unable to pay their bills, circumstances that threaten to cripple the US credit market.
Congress acted by passing the Coronavirus Aid, Relief, and Economic Security Act (“CARES Act” or the “Act”), billed in part as a comprehensive COVID-19 relief plan. Recognizing the importance of consumer credit reporting, the CARES Act included provisions which attempt to protect consumer credit if the consumer enters into an “accommodation” with a furnisher of consumer credit data. An “accommodation” is an agreement to defer one or more payments, make partial payments, forebear delinquent amounts, modify a loan or contract, or receive any other assistance or relief granted by a creditor, to a consumer affected by COVID-19 during the “covered period.” The “covered period” is the period beginning on January 31, 2020 and ending 120 days after the national emergency terminates. Different reporting requirements apply, depending on whether the consumer’s credit obligation is current or delinquent when the furnisher makes an accommodation.
For example, if a furnisher makes an accommodation with respect to one or more payments on a consumer’s credit obligation or account when it is not delinquent, and the consumer makes the payments or is not required to make one or more payments under the accommodation, then the furnisher must report the obligation as “current.” When reporting an account as “current,” a furnisher should consider all of the trade line information they furnish reflecting an account as current or delinquent and cannot simply use a special comment code to report a declared disaster or forbearance. If the obligation or account is delinquent before the accommodation (but not yet charged-off), the furnisher must maintain the delinquent status while the accommodation is in effect and, if the consumer brings the obligation or account current during the accommodation period, the furnisher must report it as current.
The Consumer Financial Protection Bureau (“CFPB” or the “Bureau”) provided the following example in its guidance: “If at the time of the accommodation the furnisher was reporting the consumer as 30 days past due, during the accommodation the furnisher may not report the account as 60 days past due. If during the accommodation the consumer brings the credit obligation or account current, the furnisher must report the credit obligation as current.” Once an accommodation ends, the furnisher must continue to report the time period covered by the accommodation in accordance with the CARES Act protections. For example, the furnisher may not report a consumer who they reported as current during the accommodation as delinquent post-accommodation if payments were made in accordance with the accommodation plan.
Furnishers, who may already be facing operational challenges as a result of remote work and loss of staffing, could face challenges when trying to comply with the Act. The CFPB responded with a policy statement and Frequently Asked Questions guide, indicating it would provide some “flexibility” in its enforcement approach to help furnishers manage these challenges. However, the CFPB warned furnishers that the Bureau still has an expectation of compliance, and that it would be appropriate to evaluate individually the circumstances of each furnisher and its “good faith” efforts to comply.
All of this regulation and guidance leads to a fundamental question, namely whether the CARES Act provisions on credit reporting truly protects the consumer’s credit, and, perhaps more importantly, the consumer’s credit score. Without question, this CARES Act provision should protect a consumer from having a delinquency show on their credit report when they enter into an accommodation. However, the consumer credit report may use a “special comment code,” which would show the debt being in an accommodation plan, such as payment deferral or forbearance. While the CFPB has emphasized that such a code may not fully satisfy the requirement, as the furnisher should look at other data fields to ensure they show the debt as “current,” there is no restriction from inputting an accurate description of the debtor’s current position with the loan. Such a description may in fact be required in order to fully and accurately show the status of the obligation. These descriptions can, and often will, lead to a decrease in a consumer’s credit score. Even if a decrease does not occur, the coding itself could lead to a consumer’s lack of ability to obtain credit, as some creditors will require a number of payments post forbearance, before they will lend new credit.
So, what should a furnisher do? The furnisher must balance their operational challenges, their staffing, and their desire to provide the best customer service they can with the enhanced reporting requirements required by the CARES Act. The furnisher should establish policies and procedures to ensure accommodation plans are appropriately flagged and thus reported correctly. The furnisher should establish a plan to answer a consumer who asks, “Will this accommodation hurt my credit?” so as to not create a false impression of the overall impact on a consumer’s credit health. Finally, the furnisher should document the steps they have taken to comply, and, just as importantly, the operational or technical roadblocks that could prevent full and absolute compliance. These steps will help furnishers mitigate the risks that may result, including litigation and regulatory action.
The economic impact and uncertainties related to the spread of COVID-19 might put pressure on business agreements, especially M&A transactions nearing signing or closing. It comes as no surprise that actual and potential business repercussions of the COVID-19 pandemic have prompted parties to try to walk away from a deal that suddenly appears less appealing than before the pandemic. Aside from force majeure, the most commonly used argument to go back on existing deal terms has been unforeseen circumstances.
In the Netherlands, courts may modify or terminate a contract based on the doctrine of unforeseen circumstances (article 6:258 Dutch Civil Code). In essence, this doctrine contains the following elements:
the occurrence of an unforeseen event;
as a result of which continuation of the contract in its current form cannot reasonably be expected; and
the risk related to the unforeseen event cannot be deemed to be borne by the party relying on the doctrine of unforeseen circumstances.
The burden of proof is high. As an example, Dutch courts considered the worldwide financial and economic crisis of 2008 an entrepreneurial risk, which did not justify the modification or termination of business agreements.
COVID-19 and Measures Taken in Response May Constitute an Unforeseen Event
An event qualifies as unforeseen if it has not been taken into account in the contract either expressly or implicitly. In addition, the event must occur after the parties entered into the agreement.
In the Netherlands, the World Health Organization (WHO) reported the first case of COVID-19 on February 27, 2020. On March 11, 2020, the WHO characterized COVID-19 as a pandemic. On March 15, 2020, the Dutch government declared a lock-down to curb the spread of the virus.
There is no general rule on the date up to which the pandemic would still be considered a future event. Similarly, parties can disagree on whether the impact of the pandemic had been discounted in the contract, either implicitly or explicitly by, for example, inclusion of a material adverse effect clause (MAE). This is a question of contractual and contextual interpretation. In the Netherlands, the literal meaning of a contractual provision is not always decisive. Based on the specific circumstances of the case as put forward by the parties, the court will assess what the parties could reasonably understand a provision to mean and what they could reasonably expect from each other on that basis.
In general, Dutch courts accept that the spread of COVID-19 and the government measures taken in response could qualify as unforeseen circumstances.
Private Equity Firm Ordered to Execute SPA
In one of the first pandemic-related cases, Nordian v. J-Club, the Amsterdam District Court ordered the private equity firm Nordian to proceed with the signing of a share purchase agreement (SPA) and rejected the firm’s argument that it could not be expected to sign in view of the pandemic.
The buyer Nordian was selected through a controlled auction after the firm submitted a binding offer with fully committed financing. Nordian and the sellers entered into a signing protocol on February 28, 2020, which provided for the signing of an SPA in agreed form. The parties were obliged to sign the SPA as soon as Nordian obtained representations and warranties insurance.
On March 19, 2020, after the Dutch government declared a lock-down, Nordian tried to abandon the deal. The sellers brought summary proceedings to secure Nordian’s signing of the SPA.
Nordian cited “unforeseen circumstances” and argued that the sellers could not expect the SPA to be signed in its agreed form in view of the circumstances resulting from the pandemic. The court dismissed this defense. The potential consequences of the pandemic for the target had been discussed between the parties prior to execution of the signing protocol. In the context of this discussion, the purchaser had not opted to negotiate an MAE clause. Through the discussion and the decision not to include an MAE clause, the court found that the parties had taken into account the consequences of the pandemic. Therefore, in this case the pandemic was not an unforeseen event, and Nordian was ordered to sign the SPA.
The Contractual Allocation of Risk and the Pandemic
Another fundamental element of the doctrine of unforeseen circumstances is whether the unforeseen event is such that continuation of the original agreement cannot reasonably be expected. Circumstances that may give rise to judicial intervention include a severe disruption in the balance of the parties’ contractual obligations.
The Principle of Sharing the Pain
In Tennor v. McCourt Global Sports, the Netherlands Commercial Court ruled on the question of whether a break fee was payable despite the pandemic. A letter of intent (LOI) had been signed with respect to the acquisition of a 50-percent stake in an equestrian show-jumping business. The LOI contained a EUR 30 million break fee. The buyer decided not to pursue the transaction and argued that the break fee should be reduced in light of the pandemic.
The NCC noted that the parties had not discussed the impact of the pandemic. However, the LOI included a waiver of claims with respect to the fee. The NCC stated that “the COVID-19 circumstances, at least in the short term, are so exceptional and disruptive that it may be hard to say they were provided for.” The NCC nevertheless saw no need to answer this question and ruled that the pandemic did not make it “unacceptable for the claimant to demand strict performance by the defendant.”
The NCC reached this conclusion based on the principle of sharing the pain. This notion appears in Dutch literature as a possible solution to preserving the contractual balance. The NCC ruled that the break fee—despite the potential impact of the pandemic—should stand: “If the fee were to be reduced in any business downturn, the fee’s purpose—comfort and confidence to get the deal done—would not be accomplished.” Consequently, the allocation of risk provided for by the LOI withstood the pandemic-induced stress test.
Unsuccessful Buyer’s Remorse
A similar decision was reached in Coltavast v. Metroprop (only available in Dutch), which concerned a real estate transaction. Metroprop was supposed to acquire two properties in Coltavast’s real estate portfolio. The transfer was scheduled for March 31, 2020. The sales contract did not cover financing arrangements. Metroprop had difficulty arranging financing and requested that the transfer date be postponed, which Coltavast refused. The matter was brought before a judge in Amsterdam for injunctive relief.
Metroprop argued that it was unable to arrange financing due to the pandemic, and that the value of the properties had decreased as a result of the crisis. In this case, the court accepted the pandemic as an unforeseen circumstance but upheld the contractual allocation of risk. The court ruled that Metroprop—as a professional party—should have been aware of the financing risk and found that Metroprop had failed to act expeditiously with respect to procuring financing for the transaction. The court suspected that this was a case of buyer’s remorse and ordered Metroprop to pay the purchase price and proceed with the transfer.
In Municipality Enschede v. Real Estate Developer (only available in Dutch), a real estate developer tried to renege on its obligation to acquire several plots of land from the municipality of Enschede, citing unforeseen circumstances. The court noted that the pandemic arose after the developer had defaulted under the sales agreement, alluding to the artificial nature of the unforeseen-circumstances defense, and upheld the contractual allocation of risk.
Postponement of Closing Due to the Pandemic
So far, in only one instance did a court allow a minor modification of the contract. In Care v. Vision (only available in Dutch), the court ordered the closing date to be pushed back by two months.
The parties, both specialists in laser eye surgery, signed a sales agreement early March 2020 for the takeover by Vision of Care’s activities. Closing was scheduled for April 1, 2020. On March 17, 2020, the clinics of both parties had to close as part of government measures to contain the spread of the COVID-19 virus. On March 24, 2020, Vision tried to postpone closing by at least six months and renegotiate the sale terms, citing inter alia unforeseen circumstances. Care lodged summary proceedings to enforce the closing of the transaction.
During their negotiations, the parties did not discuss the pandemic, and Vision had not insisted on including an MAE clause in the sale agreement. In the opinion of the court, the pandemic as a whole was not unforeseen at the time of the signing of the agreement; however, the court found that the government measures related to the pandemic were. Noting that Care’s business was mandatorily closed at the time and that Vision was ineligible to receive financial relief from the government, the court ruled that Vision was not reasonably required to close the transaction at the initially scheduled date of April 1, 2020. The court continued, however, that because Care’s clinics had meanwhile reopened and its turnover recovered, Vision could be required to proceed with the closing of the transaction. The court ordered Vision to close the transaction by June 1, 2020. Given that the judgment was dated June 19, 2020, this meant in effect an order to close as soon as possible.
The reference in the court’s reasoning to Care’s recovered turnover after reopening appears to suggest that Vision perhaps could have had successfully avoided the closing if Care’s operations had not bounced back. However, even though the court allowed a minor modification of the SPA, it is unlikely that Vision would have been let off the hook entirely in a more unfavorable recovery scenario.
Conclusion
Deal and business certainty is key. Dutch courts are reluctant to terminate or modify a business contract based on the doctrine of unforeseen circumstances. If the parties discussed the pandemic or if the contract contains an MAE clause, the court will most likely find that the parties have taken the pandemic into account in the contract. In addition, the courts tend to uphold the contractual allocation of risk, despite the impact of the pandemic, and have no patience for buyer’s remorse. The one case in which a court allowed the contract to be modified is likely a one-off exception to the general rule.
This article reflects circumstances through mid-August 2020, when the article was submitted.
While the COVID-19 pandemic has had an effect on almost every aspect of employment, perhaps the biggest change for most employers (and the change that is most likely to have a lasting impact) is the transition of many employees to some form of remote work. Relatedly, many businesses have been forced to recruit and screen job applicants remotely, abandoning traditional in-person interviews and job assessments in favor of virtual meetings and online tools to measure, among other things, cognitive capabilities, emotional intelligence, personality traits, and skill sets. Even prior to the pandemic, many companies were beginning to migrate towards the use of artificial intelligence (“A.I.”) in screening applicants, in hopes that computers would speed up the hiring process, more accurately identify the right candidates for the position, and eliminate human bias and subjectivity in selecting candidates. Whether it was deploying machine learning to identify recruits based on the content of their online profiles, or using algorithms to sort through resumes, or even using face and voice analysis software to assess various competencies and characteristics, A.I. was touted by many companies as a hiring panacea. That drumbeat has only become louder among employers in an environment where live meetings and social interactions have become circumscribed. However, without proper vetting and analysis, these tools can actually introduce bias into the process and expose employers to liability under various federal, state, and local laws. This article explores the ways in which A.I. and machine learning are in use during the screening, interviewing, and hiring process, as well as the complicated (and expanding) legal framework in which these tools must operate, and identifies potential pitfalls for employers seeking to implement these technologies.
COVID-19 Has Accelerated the Move Towards a Work-From-Home Economy
Even prior to the COVID-19 pandemic, working from home was becoming an increasingly common practice. According to a 2012 study, the proportion of U.S. employees who primarily work from home nearly doubled from 2000 to 2010.[2] The number of employees regularly working from home grew 173% from 2005 to 2012, and, in 2016, 43% of employees reported working remotely with some frequency. This has been driven by a number of factors, including an increase in jobs that are performed mostly with computers, the improvement of remote work technology, and an increasing number of households with children in which all caregivers are working.
COVID-19 has obviously accelerated this shift to remote working exponentially. During COVID-19, more than 60% of U.S. employees reported that they have been primarily working from home due to the pandemic.[3] Even in cities and states where employers are not required to have non-essential personnel working remotely, many employers have voluntarily made the switch to prevent the potential spread of the virus within the workplace. While it is unlikely that more than one-half of the U.S. workforce will be working from home full time after the pandemic subsides, many employers are anticipating allowing some form of permanent flexibility in the workweek, even in a post-COVID world. A PwC survey of employers showed that 55% anticipated that most of their workers will be working from home at least one day a week following the pandemic.[4]
The current pandemic and the accelerated move towards a flexible workweek create obvious impediments to the interviewing process, as candidates cannot always be brought in for live conversations with existing employees. During the pandemic, employers have replaced some of these live meetings with video conferencing; however, Zoom meetings can remove some of the subtleties that emerge when individuals are face-to-face. One alternative that employers are increasingly exploring is A.I.
Companies Are Increasingly Using A.I. in All Stages of Screening, Interviewing and Hiring
The use of computer processing power in the screening and hiring process is not a new phenomenon. In fact, for several decades, employers and recruiting firms have been using simple text searches to cull through resumes submitted in response to job listings. These text searches have given way to more complex algorithms that do more than search for identified keywords. For example, Ideal, an “A.I.-powered talent screening and matching system,” has the ability to understand and compare experiences across resumes to determine which candidate’s work history more closely matches the requirements of an open position. Some companies, such as LinkedIn Recruiter and ZipRecruiter, bring A.I. into the equation even earlier in the process, searching the social media and public profiles of millions of individuals to determine whether a job posting is even advertised to a particular candidate.
Once a candidate has been identified, A.I., in the form of chat bots, can be used to automatically reach out to that individual and determine whether the person is available to start on the employer’s preferred timeline or whether the individual is open to commuting. Some companies have applicants play neuroscience computer games, which are then analyzed to predict candidates’ cognitive and personality traits.
A.I. is also utilized in the interview process. One tech company, HireVue, started in 2004 as a video interview platform that allowed candidates to record answers to questions and upload them to a database for recruiters to later review and compare to answers from other applicants.[5] Since then, HireVue has integrated A.I. into its platform. It now uses facial and voice recognition software to analyze body language, tone, and other factors to determine whether a candidate exhibits preferred traits.
The Pros and Cons of A.I. in Hiring
The technology companies developing these A.I. tools tout their ability to help recruiters and HR departments quickly sift through mountains of applicants and more efficiently identify qualified candidates from the outset. Companies might receive thousands of applications for a single job posting, leaving HR departments little choice but to find some way to cut down the number of resumes that have to be reviewed, or alternatively to speed-read resumes trying to weed out unqualified candidates. The use of an A.I. system could ensure that every resume is at least screened. Some A.I. services can also save time by analyzing publicly available data such as social media profiles, resumes, and other text-based data submitted by the applicant, eliminating the need for additional assessments.
Proponents of this technology also argue that A.I. systems can be fairer and more thorough than human recruiters can—some systems can consider upwards of 20 factors in each application in fractions of a second, and these automated systems can apply the same analysis to every applicant, whether it is the first resume reviewed for a position or the five hundredth. While human recruiters or interviewers might be impacted by whether they are having a particularly busy day or whether they were sleep-deprived the night before, facial and voice recognition software analyzes every candidate the same way. A.I. also, theoretically, can be used to avoid the unconscious preferences and biases of human recruiters by stripping out information relating to, among other things, name, age, and gender, all of which can color a person’s analysis of an applicant’s qualifications.
Those who are more cautious about the use of A.I. in recruiting point out that the systems are only as good as the programmers who write the algorithm and “feed the machine.” If an A.I. tool is fed resumes of people who have previously been hired by the company, and the recruiting departments making those hiring decisions harbored subconscious biases and preferences, those biases and preferences could be inherited by the A.I. tool. This could have effects that range from the bizarre—such as the resume screening company whose algorithm determined that the factors most indicative of job performance were having the name Jared and playing high school lacrosse[6]—to the more nefarious. Amazon reportedly scrapped an internally developed recruiting tool after it discovered that the algorithm was disfavoring resumes that included the word “women’s,” (for example, if a resume included information about the applicant’s participation on a college’s women’s ice hockey team) and candidates who graduated from two all-women’s colleges.[7] This occurred because the algorithm had been fed resumes from applicants who had previously been hired by Amazon, and those hires were overwhelmingly male.
Unintentional discrimination could also seep into A.I. systems in less direct ways. An algorithm trained to prefer employees within a certain commuting distance might result in applicants from poorer areas being disadvantaged. Even as recently as 2019, top facial recognition systems were shown to misidentify female black faces ten times more frequently than female white faces.[8] This suggests that A.I. programs might have issues analyzing the facial expressions of black applicants. Differences in speech patterns and vocabulary that correlate with race or ethnicity could complicate automated voice analysis. These are not biases that are being intentionally programmed into A.I. software, but they could nonetheless result in certain groups of applicants being unfairly disadvantaged, which opens employers up to potential claims under various anti-discrimination laws.
Use of A.I. Creates Potential Risks under Existing Employment Laws
Like any other recruiting or hiring practice, the use of A.I. systems to screen and interview candidates implicates Title VII of the Civil Rights Act of 1964 (“Title VII”), a federal law that protects employees and applicants against discrimination based on certain specified characteristics such as race, color, national origin, sex, and religion, as well as the Age Discrimination in Employment Act (“ADEA”). Both Title VII and the ADEA prohibit discrimination based on disparate treatment and/or disparate impact. While a claim of disparate treatment—i.e., intentional discrimination—might seem odd when talking about use of a computer program that by its nature necessarily lacks a discriminatory motive or intent, courts have upheld claims of disparate treatment based on allegations of unconscious or implicit bias.[9] As discussed above, unconscious bias can manifest in an A.I. system because of its programming and training. Thus, a court could find that an employer faces the same liability for a program exhibiting the unconscious bias of its programmer as it would if the programmer had made the hiring decision him or herself, based on that bias.
Alternatively, an employer could face a Title VII or ADEA disparate impact claim if use of a particular A.I.-driven program or algorithm adversely impacts members of a protected class, such as the female applicants who were being disfavored by Amazon’s recruiting tool. Courts analyzing such a claim could turn to a seminal line of cases that dealt with employers’ use of standardized tests in the application and promotion process. In its opinions in Griggs v. Duke Power Company[10] and Albemarle Paper Co. v. Moody[11], the Supreme Court established that if such tests are shown to have a disparate impact on protected groups of employees, employers must establish that the tests are both job-related and represent a reasonable measure of job performance. Courts could apply the same reasoning to A.I. programs and algorithms, whereby employers may be forced to establish how the factors considered by the programs relate to the specific job requirements for the position at issue. In some cases, such as analysis of relevant experience in a resume, an employer might be able to make such a showing easily. In cases where facial recognition software is prioritizing candidates who made eye contact during an automated interview, job-relatedness might be more difficult to establish. In addition, even if an employer shows that the A.I. tool is considering job-related factors, applicants could still succeed on a disparate impact claim by pointing to the existence of a less discriminatory practice that could serve the same job-related business interest.
An A.I.-hiring practice could also implicate the Americans with Disabilities Act (“ADA”) if an algorithm discerns an applicant’s physical disability, mental health, or clinical diagnosis, all of which are forbidden inquiries in pre-employment candidate assessments. The ADA Amendments Act of 2008 broadened the statutory definition of “disability,” increasing the scope of individuals whom the ADA protects. Similarly, the Equal Employment Opportunity Commission (“EEOC”) has issued guidance qualifying the expanded list of personality disorders identified in the psychiatric literature as protected mental impairments.[12] Consequently, the ADA may protect applicants who have significant concentration or communication problems, both of which A.I.-technology may identify as a disqualifying characteristic for employment.
The potential for A.I. recruiting practices to violate existing employment statutes is not hypothetical. In fact, the EEOC has already investigated at least two instances of alleged A.I. bias, and has made clear that employers using A.I. hiring practices could face liability for any unintended discrimination.[13] Furthermore, in September 2018, three U.S. Senators requested that the EEOC develop guidelines for employers’ use of facial analysis technologies to ensure they do not violate anti-discrimination laws.[14] Though the EEOC has not yet responded to the Senators’ request, the Commission’s recent enforcement activities demonstrate its focus on the growing use of new technologies. For example, the EEOC, in 2017, found reasonable cause to believe an employer violated the ADEA by advertising on Facebook for a position within its company and “limiting the audience for their advertisement to younger applicants.”[15]
In addition to laws focusing on discrimination, the use of certain A.I. recruiting tools could implicate state biometric laws. Illinois,[16] Texas,[17] and Washington[18] have laws regulating the collection of biometric identifiers including scans of hands, fingers, voices, faces, irises, and retinas. The laws generally require that businesses collecting biometric identifiers specify how they safeguard, handle, store, and destroy the data they collect, and provide individuals with prior notice and consent, including notice of how exactly the data will be collected and used. Furthermore, New York, California, Washington, and Arkansas have recently amended their existing state laws to include biometric data in the definition of protected personal information. To the extent that employers use facial or voice recognition software to analyze applicants’ video interviews, they may have to develop policies to ensure that their storage and use of that data complies with applicable state laws. Furthermore, the nature of an online application process means that employers may end up inadvertently collecting biometric data from individuals who reside outside of the states in which the company normally operates, which could expose the employer to additional legal requirements of which it might not be aware.
Many States Are Now Focused on Protecting Job Applicants Regarding the Use of A.I. in Hiring
While A.I. in recruiting is not regulated on a federal level, Illinois recently enacted a first-of-its-kind law called the Artificial Intelligence Video Interview Act. Effective January 1, 2020, the law imposes strict limitations on employers who use A.I. to analyze candidate video interviews.[19] Under the Act, employers must: a) notify applicants that A.I. will be used in their video interviews; b) obtain consent to use A.I. in each candidate’s evaluation; c) explain to applicants how the A.I. works and what characteristics the A.I. will track in relation to their fitness for the position; d) limit sharing of the video interview to those who have the requisite expertise to evaluate the candidate; and e) comply with an applicant’s request to destroy his or her video within 30 days.
New York currently is considering legislation to limit the discriminatory use of A.I. technology. If passed, the new law would prohibit the sale of “automated employment decision tools” unless the tools’ developers first conducted anti-bias audits to assess the tools’ predicted compliance with the provisions of Section 8-107 of the New York City Code, which sets forth the city’s employment discrimination laws, and prohibits, among other things, employment practices that disparately impact protected applicants or workers.[20] New Jersey and Washington state legislators introduced similar legislation in 2019.
Furthermore, beginning in 2018, New York, Vermont, and Alabama created task forces to begin studying the development and use of A.I. technologies. The states directed the task forces to assess the A.I.-tools for various benchmarks like discriminatory impact, fairness, accountability, and transparency, and to develop best practices for A.I. usage. These efforts to examine A.I. tools in depth could foreshadow upcoming state regulation of A.I.-driven pre-employment tools.
States legislatures are not the only ones scrutinizing A.I. usage in recruiting. Senate and House Congressional legislators introduced the Algorithmic Accountability Act (“AAA”) in April 2019.[21] The proposed AAA is the first federal law aimed at regulating the use of algorithms by private companies, and would task the Federal Trade Commission with creating regulations that require major employers to assess their A.I. tools for accuracy, fairness, bias, discrimination, privacy, and security and to implement timely corrections. As drafted, the AAA only applies to companies with revenues in excess of $50 million per year, that possess information relating to at least one million people or devices, or that act as data brokers who buy and sell consumer data. Commentators have stated that the proposed act provides clear notice that Congress believes A.I. should be regulated, and will step in.[22]
What Employers Should Be Aware of When Considering Using A.I. in Hiring
Just as COVID-19 has accelerated the transition of many employers to flexible work schedules, the nationwide move to more regular work-from-home arrangements is likely to accelerate the adoption of A.I. tools in the recruiting, interviewing, and hiring process. To the extent that employers are considering using such tools, either in-house or through a recruiting company, there are certain issues of which they should be cognizant:
Employers should know the factors being considered by the program or algorithm. In much the same way that employers carefully develop and identify non-discriminatory and non-biased factors and considerations that are important to their traditional hiring decisions, they need to be equally as diligent in developing and modifying (where appropriate) the inputs that are fed into their recruiting programs and algorithms used to screen and evaluate potential candidates and applicants. Not only will this enhance the likelihood of recruiting success, but it will give employers the opportunity to assess whether the factors are, in fact, job-related, which is a lynchpin criterion under many employment laws.
Employers should consider auditing automated tools on a regular basis. One of the main selling points for machine learning tools is that they can adapt on their own to feedback from the person making employment decisions, theoretically leading to better results the longer they are used. The downside of this constant adaptation is that employers cannot rely on an initial analysis of whether the program is returning results that may disadvantage one group or another. Employers should consider regularly auditing the results produced by these tools to ensure that the programs are not inadvertently “learning” illegal or improper lessons from the information that is input. Self-critical analysis of both the inputs and outputs is essential to minimize liability risk under the employment laws.
Outsourcing does not eliminate risk to employers. Not all employers have the capability of internally developing A.I. tools for recruiting—many likely contract with outside vendors to handle parts of the recruiting process, particularly the initial vetting of applicants and/or the advertising to specific potential candidates. Using such an arrangement, however, does not exempt the employer from liability if the vendor is using tools that discriminate against protected groups. Similar to requests for salary history and background checks, employers may be held liable for violations of employment laws by recruiting companies. As such, employers—through appropriate contract language—should require their recruiters, or others acting on their behalf, to comply with all existing employment laws in connection with the screening and hiring of job applicants.
[1] Summer Associates Rund Khayyat and Kate Waterman assisted in the drafting of this article.
[2] Mateyka, Petr J., Melanie Rapino, and Liana Christin Landivar, ‘‘Home-Based Workers in the United States: 2010,’’ U.S. Census Bureau, Current Population Reports, 2012.
[9]See e. g., Arlington Heights v. Metropolitan Housing Dev. Corp., 429 U.S. 252, 265-266, 97 S.Ct. 555, 563-565, 50 L.Ed.2d 450; see alsoKimble v. Wisconsin Dep’t of Workforce Dev., 690 F. Supp. 2d 765, 778 (E.D. Wis. 2010) (holding plaintiff established prima facie discrimination case by relying on evidence of employer’s implicit bias).
One doesn’t have to dig too deep into legal organizations to find AI skeptics. AI is getting tremendous attention and significant venture capital, but AI tools frequently underwhelm in the trenches. Here are a few reasons why that is and why I believe GPT-3, a beta version of which was recently released by the OpenAI Foundation, might be a game-changer in legal and other knowledge-focused organizations.
GPT-3 is getting a lot of oxygen lately because of its size, scope, and capabilities. However, it should be recognized that a significant amount of that attention is due to its association with Elon Musk. The OpenAI Foundation, which created GPT-3, was founded by heavy hitters Musk and Sam Altman and is supported by Mark Benioff, Peter Thiel, and Microsoft, among others. Arthur C. Clarke once observed that great innovations happen after everyone stops laughing. Musk has made the world stop laughing in so many ambitious areas that the world is inclined to give a project in which he’s had a hand a second look. GPT-3 is getting the benefit of that spotlight. I suggest, however, that the attention might be warranted on its merits.
Why Some AI-Based Tools Have Struggled in the Legal Profession and How GPT-3 Might Be Different
1. Not Every Problem Is a Nail
It is said that when you’re a hammer, every problem is a nail. The networks and algorithms that power AI are quite good at drawing correlations across enormous data sets that would not be obvious to humans. One of my favorite examples of this is a loan-underwriting AI that determined that the charge level of the battery on your phone at the time of application is correlated to your underwriting risk. Who knows why that is? A human would not have surmised that connection. Those things are not rationally related, just statistically related.
This capability makes AI tools good at grouping like things together to facilitate users finding them based upon revealed correlations. Consequently, many AI applications are some variant of finding stuff better. It is what they do well. However, “finding stuff” is not a first-order problem in legal organizations. It is merely a means to an end.
The “end” in legal organizations is a document of some kind. Documents are their widget—the thing legal teams build. Finding information that is relevant to creating a document is helpful. Actually producing that document, though, is far more helpful.
Producing documents, it turns out, is something GPT-3 does very well. That is at the heart of its distinction from many other AI tools – its ability to produce sophisticated documents. At its core, GPT-3 is a text-prediction engine. It is designed to accept as input a string of text and from that input predict, from a statistical analysis of everything it has ingested, what text should come next. That process can be repeated recursively, so from a simple text string an entire document can be generated.
It does this through statistics and algebra, more or less. GPT-3 has read, essentially, everything—at least all substantive publicly available documents in huge portions of the internet, which at this point in history represents a material segment of all expressed human knowledge. Accordingly, it can predict, given some input of text, what text is statistically likely to come next. You can feed it a few lines, and it predicts the next. Moreover, early testers claim that you can instruct GPT-3 to write in a certain voice. Your document can be created in the voice of Hemingway, Shakespeare, or Barack Obama. Pretty cool stuff.
I think this is the breakthrough for legal organizations. GPT-3 isn’t just finding stuff for you; GPT-3 is making stuff for you. Certainly, other AI products add value—it’s not trivial that we have something that makes wrenches—but it’s another thing entirely that if you sell cars, you have something that makes a car.
2. With Data Sets, Sometimes the Juice Isn’t Worth the Squeeze
Most enterprises that have implemented AI tools confront the training dataset problem. Algorithms that were designed with enormous datasets depend upon such large datasets in operation. When such tools come out of the lab and into the enterprise, assembling the appropriate dataset is often a gating factor.
The issue in legal organizations is one of scale and effort. The volume of documents in most legal organizations, even large ones, are nowhere near the numbers for which AI tools were designed. In addition, vetting and assembling such datasets and authenticating a product’s performance after training on such collections can be extremely time consuming. In areas such as contract intelligence, tools that are trained on large, publicly available data, such as the SEC’s EDGAR database, can be an exception to this problem. These tend to work out-of-the-box on an organization’s contracts, which tend to be similar to the large public dataset. However, absent this predelivery training, it is frequently found that creating and monitoring the dataset is a bar to success in an organization.
GPT-3, however, has been pretrained on billions of substantive documents from large collections of publicly available documents. Given that GPT-3 is pretrained with a vast dataset, it is functional out-of-the-box for the purpose of generating documents. Early research suggests that it can be hyper-tuned on an organization’s own data, but it doesn’t have to be. This solves the primary challenge for business users in getting out of the gate with some AI tools.
3. Thinking Isn’t as Important as Doing
One criticism that has been levied upon GPT-3 is that it does not “reason” as humans do, so on occasion its output is absurd. That’s an accurate criticism, and the public conversation about GPT-3 is not short of humorous examples.
GTP-3 is a statistical engine, without the reasoning ability of humans or the yet-to-be-created “strong AI.” People frequently ask whether an AI will pass the Turing Test (meaning would it fool a human into thinking he or she were interacting with another human). Although that is a useful shorthand for measuring an AI’s reasoning ability compared to humans, it doesn’t say much about its usefulness. In knowledge organizations where creating documents is a central activity, usefulness is judged by a tool’s ability to do that task, not its ability to fool someone about the source. For that purpose, GPT-3 appears to be well-suited. Although the absurd output that GPT-3 sometimes creates can be fun to see, the wrong turns are pretty obvious and unlikely to escape even cursory review. Most of us can probably point to some pretty absurd output from humans, too, but it’s hardly a reason to dismiss them as participants in the ecosystem.
What GPT-3 does is create stuff, rapidly, based upon a significant chunk of human knowledge. For all that doing, perhaps its lack of thinking can be forgiven.
Applications for GPT-3 Worth Exploring in Legal Organizations
Given that GPT-3 is good at generating documents, it’s easy to imagine applications of this technology in legal organizations. Almost any task that is document-oriented (except, presumably, those where the unique facts overwhelm all other aspects of the document) are good candidates. Here are a few that we will be exploring with our corporate legal department clients, which I suspect are representative of those that will make sense for other organizations:
Powering intake systems. In our work with corporate legal departments, a common problem is managing the interaction between business units and the legal department. The requester wants prompt, accurate help. The legal department wants to provide that help while complying with headcount and bandwidth constraints. One aspect of the intake process can be providing immediate answers to common questions. GPT-3 can be part of that solution by providing contextual answers (rather than selecting from an inventory of stock answers like typical bots) as well as creating first drafts of documents. GPT-3’s ability to create answers and documents on the fly can enable chat and intake systems that users find useful rather than off-putting.
Document creation. Creating first-pass documents based on what has been done before is not only powerful, it’s what humans already do. Early in my legal practice, a senior partner once told me, “We created a set of documents in the Garden of Eden and have just been modifying them ever since.” GPT-3’s garden is much larger; it can include your collection plus everything else. In addition, it analyzes 175 billion parameters, so it makes statistically valid decisions incredibly fast. One can imagine GPT-3 being part of the process that creates initial drafts of legal memoranda, contracts, policy manuals, HR documents, RFPs, and audit responses, among other things commonly created by finding and patching together prior versions of these documents by people.
Where We Go From Here
GPT-3 is not the only helpful AI tool at our disposal; however, it does represent a transition from making the raw materials of end products to making end products themselves. For legal organizations and other knowledge workers, that is a material change. In addition, the enormous dataset upon which it is pretrained removes one of the barriers to experimentation and implementation. GPT-3 has its limits, but frequently the first limit is our imaginations. In the case of GPT-3, stretching our imaginations might serve us well.
My company specializes in understanding what business capabilities can be enabled by all the cool new tech coming into the world. We believe that GPT-3 provides some new tools of value in a legal department’s arsenal and will be focused on assessing practical, impactful solutions, hopefully making better legal organizations in the process—once the world stops laughing, of course.
On September 24, 2020, Institutional Shareholder Services, Inc. (ISS) released the results of its 2020 Global Benchmark Policy Survey. This survey aims to solicit broad feedback from institutional investors, corporate executives, board members, and other interested constituencies on potential areas of policy change for 2021 and beyond. Key takeaways from the survey include:
COVID-19 Pandemic Response
ISS’s policy guidance issued in response to the COVID-19 pandemic: 62% of investor respondents and 87% of non-investor respondents indicated that ISS should carry this or similar guidance into 2021 and continue to apply flexible approaches where warranted through at least the 2021 main proxy seasons.
Annual meeting formats: Absent continuing COVID-19 pandemic health and social restrictions, almost 80% of investor respondents chose “hybrid” (combined online and physical) shareholder meetings, whereas 42% of non-investor respondents indicated a preference for in-person meetings, with virtual meetings used only when there is a compelling reason (such as pandemic restrictions).
Expectations regarding executive compensation adjustments: 70% of investor respondents indicated that the COVID-19 pandemic’s impact on the economy, employees, customers, and communities and the role of government-sponsored loans and other benefits must be considered by boards, must be incorporated thoughtfully into compensation decisions to adjust pay and performance expectations, and should be clearly disclosed to shareholders. 53% of non-investor respondents indicated that the COVID-19 pandemic is different from previous market downturns and many boards and compensation committees will need flexibility to make decisions regarding reasonable adjustments to performance expectations and related changes to executive compensation.
Short-term/annual incentive programs: 51% of investor respondents and 54% of non-investor respondents indicated that both (1) making mid-year changes to annual incentive metrics, performance targets and/or measurement periods to reflect the changed economic realities; and (2) suspending the annual incentive program and instead making one-time awards based on committee discretion could be reasonable company responses to the COVID-19 pandemic, depending on circumstances and the justification provided.
Sustainability and Climate Change
Director accountability to assess and mitigate climate change risk: Investor respondents indicated the following actions are appropriate for shareholders to take with respect to a company they consider to not be effectively reporting on or addressing its climate change risk: (1) engage with the board and company management about their concerns (92%); (2) consider support for shareholder proposals seeking increased disclosure related to greenhouse gas (GHG) emissions or other climate-related measures (87%); and (3) consider support for shareholder proposals seeking establishment of specific targets for reduction of GHG emissions, possibly including targets for reducing the carbon footprint associated with the company’s products and services (84%). 93% of non-investor respondents favored engagement with the board and company management as the most appropriate action, while other possible actions received significantly less support, and 75% of investor respondents indicated that they would consider a vote against directors who are deemed to be responsible for poor climate change risk management.
United Nations’ Sustainable Development Goals framework: 44% of investor respondents and 49% of non-investor respondents indicated that the framework is an effective way for companies to measure environmental and social risks and to commit to improving environmental and social disclosures and actions.
Auditors and Audit Committees
Auditor evaluation: 88% of investor respondents indicated significant audit controversies as the most relevant factor (other than the relative level of non-audit services and fees compared to audit-related services and fees) to the evaluation of auditor independence and performance, whereas 67% of non-investor respondents indicated significance/frequency of material restatements as most relevant.
Audit committee evaluation: 93% of investor respondents indicated that significant controversies relating to financial reporting, financial controls, or audit should be a top consideration by shareholders when evaluating a company’s audit committee, whereas 97% of non-investor respondents chose skills and experience of audit committee members.
Board Composition
Racial and ethnic diversity:
73% of investor respondents and 36% of non-investor respondents indicated that all boards should disclose corporate board members’ self-identified race and/or ethnicity.
61% of investor respondents indicated that boards should aim to reflect the company’s customer base and the broader societies in which they operate by including directors drawn from racial and ethnic minority groups. 53% of non-investors indicated that while board diversity with respect to race and ethnicity is desirable, expectations may reasonably differ based on many factors, for example local laws, company size, geographic location, and other factors.
85% of investor respondents and 92% of non-investor respondents favored engagement with a company’s board and management team to encourage the inclusion of racial and ethnically diverse directors.
Independent board chair: 85% of investors indicated that an independent board chair is their preferred corporate model, while 48% of non-investor respondents indicated that there was no single preferred model for board leadership.
The world is rapidly changing and so is the legal profession. The term “VUCA,” meaning Volatile, Uncertain, Complex, and Ambiguous, was coined in the military and has been adopted to describe business conditions in rapidly changing markets. Today, we are witnessing VUCA on steroids.
Change requires leadership. Although lawyers often hold leadership positions in our society, they have not been taught to lead.[1] Some leaders may be born with innate leadership capabilities, but there is evidence that leadership skills rooted in change and transformation can be taught.[2]
Law schools increasingly have begun teaching about leadership and consider it to be a fundamental lawyering skill. In 2018, the Association of American Law Schools (AALS), the field’s professional academy, created the Section on Leadership. How can practicing lawyers who graduated prior to these recent changes embrace leadership? One way is through leadership coaching.
What Is Leadership Coaching in Law?
Leadership coaching is a tool that supports the development of leadership as a core legal competency, building on critical thinking skills and supporting lawyers’ analytical creativity, well-being, and capacity. It is a distinct form of coaching based on a confidential relationship with a trained professional coach who helps a lawyer enhance his or her performance. To be clear, we use the term “leadership coaching” here instead of “executive coaching” because executive coaching originates in the business world, and lawyers might not be executives.
Working with a leadership coach can help attorneys not only learn what is required to lead effectively, but also how to implement those skills in practice and incorporate them into their work. Leadership coaching offers an opportunity for lawyers to manage change (both internally and externally), consider best practices, explore and adopt new approaches, and address mindsets and/or behaviors that may no longer serve their interests. Through coaching, attorneys can gain a new perspective and reframe issues, which often generates creative solutions and helps identify what gets in the way of accomplishing their goals.
When businesses first began to adopt coaching as a human resource tool decades ago, it was often perceived as remedial—a way to “fix” a poor-performing employee or as an exit strategy. Soon, however, executive coaching became identified as a way to help business leaders “up their game,” analogous to professional athletes. Today, it is estimated that 60 percent of Fortune 500 CEOs have coaches.[3]
The legal field has been slower to adopt coaching than other analytic professions that attract smart, linear thinkers, such as engineers and business and finance professionals. Although becoming more common over the last several years, the use of leadership coaching remains less prominent within the legal profession than in the business world.
As lawyers who are also professionally trained leadership executive coaches, we have coached a wide array of lawyers, from law firm partners currently in leadership roles and those identified as rising leaders, to lawyers serving as in-house counsel, in government agencies, and leading nonprofit organizations, to attorneys in business, management, and policy roles. We have seen similar themes reflected among many lawyers’ leadership goals. Those themes include:
motivating and incentivizing;
delegating the way a task is accomplished;
providing and receiving constructive feedback;
evaluating and supporting performance;
supervising, training, and accountability;
managing workplace conflicts;
mentoring and sponsoring effectively;
diversity, equity, and inclusion; and
retention and replacement.
All of these skills are required for successful leadership.
The Challenges of Law Practice
In almost any field, leadership is at the core of getting things done. A great idea is just that unless it’s acted upon. Moving from thought to scalable action requires generally more than one person and often a team. To get from strategy to operations, from planning to implementation, and from policy to practice requires not just intellectual capacity but leadership acumen.
Billed as a “learned” profession, lawyers pride themselves on their intellect and sometimes scoff at “management”—a core component of leadership—as busy work or an administrative chore to be avoided that does not require real skill and that is separate from their “real” work. The fact that success in private practice is measured by billable hours and the size of a portable book of business exacerbates those tendencies, but lawyers who work in-house, in government, or in public policy often display similar attitudes.
Businesses, law firms, government agencies, and nonprofits all depend upon leaders who can successfully manage complex systems, adapt to internal and external changes they cannot control, and inspire other people to take responsibility. Such challenges often push smart, talented attorneys—who are used to being successful in their work—outside of their comfort zones.
This lack of comfort with leadership and strategy is evident in lawyers’ interactions with their clients. General counsel and their teams are expected to go beyond managing risk to actively support their company’s strategy, but in a recent survey only 55 percent of CEOs responded that their chief lawyer acted as a strategic business partner and was considered a valued member of the company’s leadership team.[4]
How Do Leadership Coaches Help Their Lawyer Clients?
Even highly intelligent and accomplished attorneys do not typically sprout new skills overnight. Without judgment and in a confidential environment, a leadership coach works with lawyers individually to help them more accurately understand how they are perceived, experiment with different approaches, provide feedback, offer resources, and help tailor a model they can own.
Typically engaged to work over a period of months, a leadership coach helps lawyers identify what they want to change or what success might look like in a particular area—questions lawyers are not often asked to consider. A leadership coach can then help them articulate specific goals for professional growth and development, identify an action plan, and hold them accountable for making progress over time.
The definition of “good leadership” varies but consistently includes nuanced judgment and emotional intelligence (EQ).[5] Indeed, numerous studies site EQ as the factor that sets CEOs apart from their peers who demonstrate similar technical skills, accomplishments, and knowledge.[6] Dismissed by some as “soft skills,” the term proves to be a misnomer in that it frequently proves much harder to learn, particularly for linear thinkers who pride themselves on their expertise and intellect.
Leadership coaching is ideally suited to help an individual develop EQ. Leadership coaches regularly help clients become more self-aware, recognize “blind spots” in how their behaviors and comments impact others, and develop a broader range of tools to more effectively accomplish their objectives.
Coaching Produces Higher ROI in Professional and Leadership Development
Pressed with client demands, lawyers are often quick to ask what the return on investment (ROI) is for any time devoted to professional or leadership development. Knowledge alone is insufficient to produce high ROI. Following even a well-received development program, most participants are likely to proceed with “business as usual” once they return to their desks.
Rather than presenting a one-size-fits-all set of best practices to a group, a leadership coach can help curate models, frameworks, and practices that are likely to be a good fit not only for a specific situation, but also a specific lawyer. Whether part of or separate from a professional development program, leadership coaching involves lawyers trying out new approaches and practices, gathering data on what works for them, and developing new tools to more effectively produce desired outcomes.
Leadership coaching within the legal profession provides an opportunity—in ways that training programs cannot—for attorneys to develop the skills they need to step up and lead effectively. Lawyers without such skills typically remain sidelined from decision making, called in at the last minute to ensure compliance rather than develop strategy, or left to “wing it” in leadership roles with lower odds of success.
Why Is Leadership Coaching Particularly Important for Lawyers Now?
A new world is emerging, and lawyers will no doubt help to craft it. A worldwide health pandemic and the ripped scab of systemic racism in the murder of yet another victim in a long line of police killings of unarmed Black people have rocked the globe. Widespread unrest continues in the midst of uncertainty around elections, a growing economic crisis, and unemployment rates not seen since the Great Depression.
All of these events illuminate the importance of diversity, equity, and inclusion (DEI). Simply put, diversity requires representation of people from different backgrounds—age, class, ethnicity, gender and gender identity, race, physical ability, sexual orientation, political beliefs, and beyond. Indeed, an expansive form of leadership, termed intersectional leadership, embraces diversity in all of its forms.[7]
Beyond reflecting diversity, inclusive environments value participants, enabling a sense of institutional belonging and access.[8] A metaphor is apt: diversity is being invited to the party; inclusion is being asked to dance.[9] Equity is a hallmark of the environment within the dance hall that allows inclusion to thrive.
Unfortunately, law firms, businesses, and many other institutions have long struggled with issues of DEI without measurable success. Leadership coaching can help lawyers move into positions of power to address DEI and develop new strategies to improve that record.
Creating and managing an inclusive workplace is a leadership skill. Developing cultural competence and consciousness, envisioning what success looks like, examining how behaviors support or undermine those goals, trying new approaches, and soliciting feedback to assess impact are all coaching strategies that produce improved outcomes.
In the shift to a post-pandemic world, change will accelerate across generations as millennials and Gen Z integrate systems and structures designed by Baby Boomers and Gen X. Broader dissemination of leadership coaching throughout the legal profession can help equip lawyers at all levels to lead effectively and develop a society of greater access and belonging.
[1]See Deborah Rhode, Lawyers as Leaders (1st ed. 2013)
[2]See generally Herb Rubenstein, Leadership for Lawyers 153–83 (2d ed. 2008).
[3]What Is leadership Coaching?, NEXT LEVEL LEADERSHIP COACHING, http://www.nextlevelleadershipcoaching.com/what-is-leadership-coaching/ (last visited Sept. 14, 2020); see generally Roland B. Smith & Paul Bennett Marrow, The Changing Nature of Leadership in Law Firms, N.Y. ST. B. ASS’N J. 33, 37 (Sept. 2008).
[4] Phillip Bantz, CEOs Wish Their General Counsels Were Better Business Partners, Corporate Counsel, Aug. 10, 2020.
[5]See Stephen P. Gallagher, Coaching in the Law Firm Setting, 55 Prac. Law 35, 39 (2009).
[6]See generally Lawrence R. Richard, Personality Matters, 60 Or. St. B. Bull. 37, 40 (1999) (citing Daniel Goleman’s work on EQ and his book Working with Emotional Intelligence, which focuses on the role emotional intelligence plays in the workplace and argues that EQ factors account for over “90 percent” of leaders success).
[7]See Anthony C. Thompson, Stepping Up to the Challenge of Leadership on Race, 48 Hofstra L. Rev. 735, 740 (2020); see also Anthony C Thompson, Dangerous Leaders: How and Why Lawyers Must Be Taught to Lead (1st ed. 2018).
[8] Leah Teague, Elizabeth Fraley & Stephen Rispoli, Fundamentals of Lawyer Leadership (Wolters Kluwer, forthcoming, 2021).
