Litigation preparedness may be hampered by fear of rising business costs

By Jerome Doraisamy|03 May 2021
Litigation preparedness may be hampered by fear of rising business costs

Corporate counsel across the globe are cognisant of increasing risks of litigation to their business, but most are not taking steps to identify specific risks, for fear of higher costs, according to new research.

Baker McKenzie has released its Litigation Intelligence: Ready for Anything? report, which surveyed 400 legal and compliance professionals around the world.

Bakers partner Jennifer Semko wrote that the threat of litigation is “coming into sharp relief” for businesses around the world as they look to manage heightened operating risks.

“An explosive combination of factors appears to be driving up both the frequency and value of litigation – including rapid digitalisation, rising expectations and accountability in relation to Environmental, Social and Governance (ESG) matters, empowerment of employee and customer voices, and growing enforcement efforts and coordination between global authorities” she opined.

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“These issues have only been accelerated by COVID-19, with some organisations beginning to uncover vulnerabilities arising from their response to disruption, and governments under pressure to fill holes in domestic finances.”

Is enough being done to mitigate risk of litigation?

According to the findings, nearly all (92 per cent) of litigation, legal and risk professionals believe that their businesses would benefit from a “more effective, coordinated approach” to help identify, manage and prepare for disputes and potential litigious proceedings.

However, simultaneously, 70 per cent of in-house lawyers also say that they choose not to identify potential litigation risks, for fear of higher costs for their businesses. This, Ms Semko noted, highlights a potentially problematic conflict that could undermine litigation preparedness.

“Choosing to remain ‘in the dark’ is likely to prove damaging – leaving many companies vulnerable to litigation without comprehensive plans and tested protocols,” the report noted.

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Litigation, Ms Semko said, is an “increasingly common reality”, and as such, preparedness is fundamentally important for businesses of all stripes.

“Organisations are best able to manage complex litigation risk when they have a robust response process that can be mobilised quickly once an issue is identified, as well as an awareness of how external and internal change will shift exposure to future litigation risks,” she said.

Factors giving rise to litigation risk

The top five litigation risks identified by respondents were cyber security, environmental, commercial, consumer/product, and tax.

Looking at the global results, businesses in the UK had the highest percentage of respondents who see cyber security as a “significant” litigation threat, at 62 per cent. The same number of UK-based respondents saw environmental issues as such.

Elsewhere, businesses in Mexico and Singapore are most worried about commercial litigation risks (56 per cent and 52 per cent respectively), those in Hong Kong were most concerned by consumer/product risks (52 per cent), and those in Japan showed the greatest level of fear about tax-related issues (52 per cent).

There remain, Bakers added, other substantive litigious threats – for example, employment considerations.

While just 18 per cent of all respondents listed employment as their greatest litigation risk, the firm wrote, “it remains a key area of vulnerability for companies to prioritise regardless of industry or market”, firm partner Paul Evans argued.

“The impact of COVID-19 on work and working life has created an environment that is particularly ripe for claims of discrimination, retaliation, health and safety and the like,” he said.

“In a very short period of time, employers were forced to close operations, reimagine how work gets done, right-size workforces to deal with changing demands, safely reopen workplaces and navigate public health issues involving testing and vaccines.

“The fast pace at which decisions have been and will continue to be made, as well as their unprecedented nature, has and will continue to lead to litigation across the globe.”

Corporate counsel in the following countries were surveyed: the US, Mexico, Brazil, Germany, Japan, Hong Kong, Singapore and the UK. While Australian counsel were not surveyed the results do provide food for thought for law departments here in how best they look to mitigate the risk of litigation in a post-pandemic marketplace.

If you are interested in helping clients better manage litigation risks, Lawyers Weekly is teaming up with Herbert Smith Freehills for a two-part masterclass series on conducting corporate and regulatory investigations without creating new legal risks. To learn more and to purchase tickets, click here.

Litigation preparedness may be hampered by fear of rising business costs
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