Why—And How—U.S. Companies Are Preparing For Increased Investigation And Regulatory Challenges

Our firm, Norton Rose Fulbright, recently completed its 17th Annual Litigation Trends Survey. One of the significant takeaways is that major companies are anticipating a new wave of regulatory and investigation challenges. These concerns are heightened for companies with significant cross-border and complex regulatory exposure, such as those in the financial services, energy, consumer markets, life science/healthcare, technology and transportation industries. As the survey data shows, in-house litigation teams foresee regulatory and investigation issues as one of their top their legal concerns for the near future.

Every year, Norton Rose Fulbright surveys corporate in-house legal departments about their perception of emerging disputes and litigation trends. This year, the firm gathered responses from more than 250 general counsel and in-house litigation team leaders. Some responses were collected by email, others by phone.

Highlights from the Survey Data

Respondents reported particular concerns regarding litigation, investigations, and regulation in the following subject areas: Environmental, Social & Governance (ESG), Cybersecurity & Data Protection, and Diversity, Equity & Inclusion.

Among other major themes, the latest survey data shows that:

ֻֻֻ• Companies increasingly report that investigations and regulation are their top dispute concerns: 33% of respondents said that regulation and investigations were among their top dispute concerns, up significantly from 24% and 15% in 2020 and 2019, respectively. In fact, this year 19% of respondents said that investigations and regulation were their top dispute concern, up from only 11% the year before.

• Companies are concerned about overlapping and potentially contradictory regulatory environments: Respondents reported serious concerns about inconsistent and, at times, conflicting regulatory mandates across the jurisdictions in which they operate (both within the U.S. and across international borders). Companies are sensitive not only to the legal risks from such complexity, but also the public relations risks.  Companies are increasingly mindful of potential “rock-and-a-hard-place” scenarios, in which compliance with one jurisdiction’s rules constitutes a violation of another set of rules.

• Companies know that regulators expect them to have sophisticated internal systems for monitoring and addressing compliance and risk: Respondents reported that regulators’ expectations of internal controls, risk monitoring, and due diligence grow more sophisticated every year, and practices that may have been acceptable several years ago are no longer sufficient to escape regulatory scrutiny.

• Companies expect to add capacity to deal with increasing regulatory and investigation issues: Approximately 21% of respondents said that they expected their in-house dispute teams to grow this year. Further, 21% of respondents anticipate taking steps to proactively address those issues through risk management, while 15% said they would enhance their internal controls and reporting structures.

What Companies Are Doing to Address These Trends

Survey respondents reported taking affirmative steps to prepare for a new wave of regulations and investigations. This is consistent with a broader trend of major companies treating such risks proactively instead of defensively, such as:

• Reviewing and improving internal monitoring of regulatory and compliance risk areas, including third party vendors, supply chains and accounting practices: Major companies know that domestic and international regulators increasingly expect a proactive approach that includes having internal compliance systems that collect and monitor risk data, leverage publicly-available risk information, and establish specific steps to address complaints and exception reports.

• Adding internal and external subject matter expertise: Companies must consider adding in-house and outside subject matter expertise in areas with which they may not have meaningful prior experience, such as national security regulations, supply chain governance, ESG, export controls and sanctions. These and other issues are likely to continue increasing in prominence for the business community.

• Adopt a multidisciplinary approach to managing risk: Finally, companies must consider the many evolving ways in which risk may manifest itself, particularly in terms of public relations, civil litigation, and shareholder activism. Fully addressing regulatory and investigation issues will often involve using multidisciplinary teams.