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IN-HOUSE DYNAMICS Getting hired Climbing the ladder
SPACs v. IPOs An e-commerce hub in Central America
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contents 4 EDITOR’S DESK
JUNE 2021 Volume 18 / Number 4
COLUMNS
16 THE ANTITRUST LITIGATOR CAN AN ANTITRUST AGREEMENT APPLY TO CONDUCT IN THE SAME ENTITY? Independence of decision makers is the issue. By Jeffery M. Cross
14 GENER AL COUNSEL INTERVIEW
10 Q&A WITH VANESSA ALLEN SUTHERLAND Hiring for talent, temperament and a sense of humor.
18 CLIMBING THE LEGAL DEPARTMENT LADDER THE POWER OF A STRONG GC/CHRO RELATIONSHIP Differing perspectives clarify risk. By Andrea Bricca FEATURES 7
INTELLECTUAL PROPERTY
12 TRADE SECRETS IN THE DIGITAL WORLD Another cybersecurity challenge. By Curtis Vock and Hannah Lutz COMPLIANCE
14 SPACS V. IPOS Either way, the long trend of going private has reversed. By Louis Lehot
HOW ORGANIZATIONS LEVERAGE AUTOMATION TO SPEED DEAL VELOCITY
Freeing lawyers to focus on law. By Dan Broderick 20 NEW LEGISLATION MAKES PANAMA AN E-COMMERCE HUB Tax, labor, and immigration incentives. By Anthony Robinson 22 A BUSINESS YOU HAVE A CONTRACT WITH FILES CHAPTER 11 An area of bankruptcy law that can fool you. By Jules Cohen
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EDITOR’S DESK
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anessa Sutherland, the subject of this month’s General Counsel Interview, says the right temperament is more important than impeccable credentials when it comes to
hiring for her legal department, because the practice of law can be stressful and unpredictable. Both she and our new columnist, in-house legal search consultant Andrea Bricca, reference the environmental, social and governance issues that have disrupted all institutions including law departments over the past year. Bricca explains how close cooperation between GCs and chief human resources officers is the key to balancing employees’ demands for advocacy and freedom of expression against the potential clash with management’s duty to protect the organization’s interests. Jules Cohen explains what your options are when a company you have a contract with declares bankruptcy, and columnist Jeffery Cross discusses something counterintuitive, the possibility that two officers in the same company can collude in an antitrust violation. In his article, Louis Lehot discusses the pros and cons of special purpose acquisition companies as vehicles for taking companies public and notes a trend worth considering even if going public isn’t on the table: Last year was the first in a long time in which more companies decided to go public than private.
Bob Nienhouse, Editor-In-Chief bnienhouse@TodaysGC.com
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All rights reserved. No part of this publication may be reproduced or transmitted in any form or by any means, electronic or mechanical, including photocopy, recording, or any information or retrieval system, without the written permission of the publisher. Articles published in Today’s General Counsel are not to be construed as legal or professional advice, nor unless otherwise stated are they necessarily the views of a writer’s firm or its clients. Today’s General Counsel (ISSN 2326-5000) is published ten times per year by Nienhouse Group Inc., 30 S. Wacker Drive, Suite 2200, Chicago, Illinois 60606 Image source: iStockphoto | Copyright © 2021 Nienhouse Group Inc. Email submissions to editor@todaysgc.com or go to our website www.todaysgeneralcounsel.com for more information.
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How Organizations Leverage Automation to Speed Deal Velocity By DAN BRODERICK
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losing deals is a critical part of any business, whether making new technology purchases, signing a lease or establishing a joint venture. Typically, closing contracts requires many hours of legal review — an inefficient, manual process that leaves both parties open to risk and lost profits. In fact, poor contracting approaches can waste hours of time and cost businesses up to nine percent of annual revenue. In some cases, lengthy involvement of the legal department can even result in lost opportunities.
One answer to improving deal velocity (the speed with which a company negotiates and signs a contract to close a transaction) is using AI to more quickly provide the solutions that customers and businesses are looking for. With the effects of Covid continuing to impact sales and transactions, every organization is looking for ways to close more deals faster and with less risk. Automated tools accomplish these goals by eliminating excess negotiation and repetitive markups, and allowing the legal team to streamline the process and be more consistent.
AI allows you to review and mark up contracts instantaneously, far faster than any member of the legal department could. AI also becomes “smarter” the more it
AI allows you to review and mark up contracts instantaneously. is used, through user-enabled machine learning feedback loops. As the tool reviews more of the organization’s deals, the machine learning gains insights into how an organization reviews and marks up contracts to leverage in future contract reviews, while also improving the speed at which it reviews previously unseen contracts. Global 1000 companies and other organizations of all sizes are increasingly turning to these types of automated tools to speed up deal velocity, minimize risk, and make the business a more attractive partner to other organizations. By leveraging AI tools as part of contract review, general counsel will quickly see several benefits: • Improve the bottom line. The costs of poor contracting processes quickly add up. After all, the faster a deal can be closed, the faster the revenue from the agreement can
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the most efficient processes, and don’t necessarily have the time to understand the short and long-term goals that come with the contracts we are reviewing. Automated tools free us to focus on these more strategic aspects, rather than routine language.
be captured. The advantages of AI have their greatest impact on certain types of common, repetitive contracts: services agreements, purchase orders, software as a service (SaaS) agreements, NDAs, licensing agreements, and sales and construction contracts. Consider that some large corporations require at least two members of the legal team to review every contract, even ones that are similar to countless deals the company has closed before. When automated tools are used in the early round of reviews, you eliminate the need for the first set of eyes. This saves time and allows the human reviewer to start with a more consistent document. • Reduce contract errors and oversights. Automated tools introduce a layer of consistency that humans simply cannot maintain across multiple contracts. Although AI cannot match the ability of an experienced attorney to make meaningful edits, it can
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treat routine provisions and language far more consistently. In the words of one general counsel involved with the contract review process, “If I knew I was making a mistake, I wouldn’t make it.” As lawyers, when we don’t know what errors we are making, we don’t know what risks we are exposing the company to. Automated software provides insights into inconsistencies in the approach to risk. It allows the company to examine risk tolerance to design a review process that is far more consistent and aligns more closely with the company’s business objectives.
For lawyers who are often averse to risk — by profession — deploying automated tools in the contracting process can provide guardrails that minimize potential liabilities and help manage performance obligations. As businesses continue to operate in an uncertain environment, buyers are particularly purposeful. By improving deal velocity, the legal department not only accelerates revenue capture but it helps the organization earn a reputation as easy to do business with. And that leads to more opportunities and more revenue.
Dan Broderick is the CEO and co-founder of BlackBoiler, an AI-powered contract review company that uses proprietary deep learning and natural language processing to speed up the process of high-volume contract review for AmLaw 50 law firms and Global 1000 companies. dan@blackboiler.com
• Lead to stronger relationships with clients. Using automated tools in the contract review process also helps on the business side. As lawyers, we focus on what we know — the legal aspects. We don’t always appreciate the challenges faced by our colleagues in business and sales. We are also often more interested in creating BACK TO CONTENTS
General Counsel Interview With Vanessa Allen Sutherland
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anessa L. Allen Sutherland is Executive Vice President and Chief Legal Officer for Norfolk
Southern Corporation, a publicly traded, major transporter of industrial products. Sutherland oversees the offices of Corporate Secretary, Government Relations, Law, Claims, and Insurance. She joined Norfolk Southern Corporation as Vice President Law in 2018 and was promoted to Senior Vice President Law - Government Relations and Chief Legal Officer in 2019. Before joining Norfolk Southern, she served as CEO and chairperson of the U.S. Chemical Safety and Hazard Investigation Board in Washington, D.C.
What are the key issues you deal with? Sutherland: Each day can bring novel issues. That’s especially true as the pandemic wanes, but there are four topics that occupy most of my time. Those are public company oversight matters such as director and shareholder engagement or risk management; handling external inquiries from claimants, litigants, shareholders, legislators and communities; handling personnel matters; and ongoing strategic planning for the department and company. Additionally, I try to keep challenges like climate change and social justice in mind, and focus on environmental, social and governance issues that affect the company and its customers.
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How do you delegate work in-house and/or to outside counsel? Sutherland: We tailor delegation for both in-house and outside counsel to promote efficient, timely and expert counsel, and to give junior and mid-level attorneys opportunities to develop. I advocate for cross-functional training among in-house counsel. That helps them become more knowledgeable about the company, which makes them more valuable to the company. Delegation of novel tasks encourages attorneys to collaborate, and delegation of strategic tasks allows them to understand the broader matters we face. Routine matters that are less complex can often be delegated to outside counsel or alternative legal service providers. That allows our in-house attorneys to focus on critical business projects.
What do you look for in lawyers that you hire? Sutherland: There’s a phrase that I use: Temperament is as important as strong credentials. Building a strong team requires hiring people who believe in teamwork, collaboration, personal responsibility and growth. And a sense of humor helps because the practice of law can be stressful and unpredictable. Working with people who work well under pressure and can be supportive of their peers is a necessity for high-performing teams. Everyone may not want to be a supervisor, but everyone must be comfortable being a leader. Our interviews highlight behavioral and situational leadership questions as opposed to excessive focus on pedigree and prior accomplishments. I want to know how candidates achieved success, not simply what success they achieved.
How do you interface and work with other departments, IT for example? Sutherland: Our company believes in the importance of cross-functional coordination, generally. However, the law department supports each business department’s initiatives by identifying legal, compliance and implementation issues. Similarly, the law department must execute its own initiatives to adopt new technology and processes. That requires interfacing with IT, Finance, HR and, occasionally, Operations. BACK TO CONTENTS
Any thoughts on legal technology, the tech you’ve adopted and what, if any, you’ve rejected? Sutherland: I’d call the department’s implementation of technology strategic, measured and highly successful. We look for creative solutions to problems instead of seeking a shiny new product and trying to find a problem it could solve. The focus is on efficiency, analytics and cost control. We want it to eliminate or reduce legal work and solve multiple problems that will enhance the workplace. Our technology is on mobile devices also. We continue to eliminate manual processes and institute automation to make our team more efficient and less burdened. In 2020, we implemented a custom data analytics tool that we developed with a vendor. It analyzes voluminous data sets and multiple analytic models to provide an opportunity to save on the ultimate resolution of a case as well as attorneys’ fees and expenses. We also implemented a new department-wide matter management system a couple of years ago to consolidate the department’s methods for tracking matters and to integrate electronic billing from outside firms. The Covid-19 pandemic presented opportunities to push ourselves even further with the use of various technology tools. Working remotely has meant rapidly adopting tools to communicate and coordinate effectively, such as embracing Microsoft Teams’ capabilities.
Thanks, Vanessa. Any other issues you want to raise? Sutherland: I’d just like to add that today’s general counsel needs to be laser-focused on employee health and wellness, and morale. The outside world has been tumultuous lately. Leaders need to be intentional about checking with their employees and service providers to ensure that they have the resources, support and communication to address their personal and professional needs.
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INTELLECTUAL PROPERT Y
Trade Secrets in the Digital World By CURTIS VOCK AND HANNAH LUTZ TRADITIONAL MEASURES HAVE DIGITAL ANALOGS
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atents and copyrights powerfully protect intangible rights, but they are time-limited and require public disclosure of protected material. Intangible information maintained as a trade secret lessens misappropriation risk so long as the information is subject to measures preserving secrecy. Trade secrets may thus be ideal for intellectual properties such as customer lists, chemical formulas, manufacturing processes, software programs, code, and digitally stored data. Maintaining adequate security measures, however, is crucial. Until recently, trade secrets were protected under a patchwork of state laws. Under the 2016 federal Defend Trade Secrets Act (DTSA), trade secrets are now also federally protected. Federal law is fairly consistent with the Uniform Trade Secrets Act (UTSA), which
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has been adopted by most states but allows owners of misappropriated trade secrets to sue in federal court. The DTSA includes an updated definition of information that may constitute a trade secret, including “programs” and “codes,” and endorses both physical and electronic storage of information. This language reflects the reality that proprietary information is increasingly stored and accessed digitally. As with any trade secret, digitally stored trade secrets must be subject to reasonable measures to preserve secrecy and cannot be generally “known.” For example, software code cannot be protected as a trade secret if it is composed merely of generally known elements without novelty; but the combination of public domain elements and digital data providing competitive advantage can be subject to trade secret protection.
Satisfying secrecy requirements for digitally stored information presents additional difficulty. Traditional measures, such as storing a secret formula in a guarded and locked safe, may not practically prevent unauthorized digital access. However, traditional measures can be analogized to the digital world. A company with software, source code or other digital information constituting trade secrets should develop strong cybersecurity procedures (including passwords and firewalls), keep its cybersecurity systems updated, and limit access of digital information to authorized users. Tiered levels of access and user permissions are particularly important so that only employees with needto-know status can access the confidential information. If a bad actor circumvents secrecy measures and accesses a trade secret, a suit for trade secret misappropriation may be applied, effecting injunctive relief for actual or threatened misappropriation, as well as recovery for damages. The DTSA does not preempt state law, so a plaintiff may sue based on DTSA and state law claims. It is now common to assert claims under both DTSA and UTSA. Remedying trade secret misappropriation through litigation, however, generally requires proving that the information falls BACK TO CONTENTS
within the definition of eligible information — that the owner/ plaintiff took reasonable precautions to keep information secret, that the information derives independent economic value from not being generally known or ascertainable, and that the information was misappropriated by the defendant. Without considering these elements before a bad actor takes and uses its valuable information, a business could find itself without recourse when the worst happens — particularly as the sort of information constituting a trade secret may not be protected by patent or copyright. A plaintiff alleging misappropriation can expect the defendant to claim plaintiff did not take sufficient measures to preserve secrecy. The specific precautions employed by the plaintiff, and the reasonableness of those precautions, can be a dispositive factor in a misappropriation case. It is also the one factor most within the control of the plaintiff. Although a business cannot necessarily control the nature of the information it uses or the conduct of third parties, it can control the measures used to protect valuable information. It is thus crucial to maintain adequate precautions to keep trade secrets secret, and to proactively document that precautions were taken.
PROTECTIVE STEPS TO TAKE There is virtually no limit to the amount of time and money that a company may expend on these precautions — to the point that business function can be impaired. The following protective measures are reasonable steps for businesses to consider: • Design a well-developed set of rules and guidelines to prevent BACK TO CONTENTS
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disclosure of trade secrets. Document them in order to prove trade secrets were, in fact, protected. Require employees to sign a confidentiality agreement defining trade secrets and requirements to appropriately manage company trade secrets. Impose a duty of inquiry where trade secret status is uncertain. Periodically remind employees of their obligations and remind departing employees of those obligations in an exit interview. Ensure employees understand and acknowledge that the business may engage in electronic monitoring (e.g., of email, internet and telephone use) to check for trade secret misappropriation. Have a defined set of procedures that employees must follow to obtain approval to share trade secrets (e.g., with third-party vendors), and require review of speeches and articles for confidential information before publication. Maintain internal secrecy by dividing secret processes into steps with different people or departments executing each step, or by providing partial access among select individuals or departments. Limit access to confidential materials to employees with need-to-know status. Limit access to workspaces and facilities to employees and third parties who execute sign-in/sign-out procedures. Sequester confidential materials in specially restricted areas. Require passwords and additional levels of permission to access digital spaces where confidential materials are stored, and keep login records. Consistently mark trade secret materials with the business
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name and “CONFIDENTIAL,” and employ confidentiality notices even in internal workspaces. Restrict reverse engineering of products containing trade secrets to the extent feasible. Ensure that confidential documents are properly disposed of (e.g., permanently deleted, shredded). Stay apprised of cybersecurity developments and vulnerabilities, and update digital infrastructure and practices accordingly. Preserve evidence if trade secret misappropriation is suspected.
Maintaining reasonable precautions to preserve the secrecy of trade secret information is a continuing obligation requiring businesses to adapt practices for its physical and digital data. Such practices can provide significant payoff should theft of valuable trade secrets occur.
Curtis Vock is a partner at Lathrop GPM. His practice involves IP strategy, intellectual property prosecution and litigation, and licensing and corporate counseling. He manages a patent prosecution team that files over 650 original applications per year in a range of technology areas. curtis.vock@ lathropgpm.com Hannah Lutz is an attorney at Lathrop GPM. She focuses her practice on trademark, copyright, unfair competition and advertising matters. hannah. lutz@lathropgpm.com
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COMPLIANCE
SPACs v. IPOs By LOUIS LEHOT
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ne of the hottest investment trends in the past year is the rise of special purpose acquisition companies, commonly called SPACs. SPACs are shell companies that exist to raise capital to acquire other companies, which is why they are also known as “blank-check companies.” The concept is an old idea, dating back to at least the late 19th century, when Henry Villard sought to raise capital to buy the Northern Pacific Railroad without revealing the name of the target company. Modern-day SPACs have existed since the mid-1990s. Today, these investment vehicles have been used across industries, from a manufacturer of electric cars to an aerospace startup to a cryptocurrency mining company. Although SPACs have been around for decades, they have seen explosive growth in the last few years. SPACInsider reports that the number of SPAC IPOs grew from one in 2009 to 34 in 2017. Two years later, there were 59, and interest exploded to 248 in 2020. This year is already on track to set a record. The level of SPAC activity has accelerated to unprecedented levels in the M&A markets as well as in the IPO markets. According to Deal Point Data, the amount of capital pursuing “public-ready” private targets is 1.85 times larger than the total gross proceeds raised in traditional IPOs in all of 2020, and 298 times 2019’s IPO proceeds. How is a SPAC different? For the target company, a SPAC acquisition provides a means of separating the IPO from the company itself. Investors buy shares of the SPAC, not of the target company. After the merger, the shares of the SPAC effectively become BACK TO CONTENTS
shares of the original corporation. This abstraction of the IPO from the underlying company explains the increasing popularity of SPACs. They provide a streamlined alternative to traditional IPOs. While a traditional IPO takes one to two years to complete, a SPAC merger can close in under six months. PwC notes that SPAC mergers can help the target companies gain liquidity without as much uncertainty in
Easier access to liquidity and a faster transition to public trading make SPACs very attractive. valuation, which is especially important when markets are volatile. Crunchbase notes that companies that would likely benefit from a SPAC acquisition over a traditional IPO are those that could launch a traditional IPO but want to accelerate their entrance into public markets in order to gain liquidity and capital. The actual merger between the SPAC and the target company is called the de-SPAC transaction. This process functions similarly to regular mergers, but the SPAC’s shareholders usually need to approve the acquisition before proceeding. And because investments in the SPAC are held in escrow, operating funds are not easy to access. The SPAC really is just a vehicle for investors to purchase the target. Once the merger is complete, the SPAC fades away while the shareholders gain their corresponding stakes in the target. If you are considering taking your company public, a SPAC
acquisition may be worth investigating. Easier access to liquidity and a faster transition to public trading make SPACs very attractive. SPAC mergers are not magical solutions, but they could be right for you. Going public means having internal controls, disclosure controls and enterprise operating systems in place to satisfy stringent standards of the U.S. Securities and Exchange Commission and strong enough to withstand the plaintiffs’ bar, which can be unforgiving in civil litigation, plus an ability to forecast revenues to satisfy Wall Street investors. A SPAC is particularly well suited for a business that requires amounts of capital investment that exceed the ability of venture capital firms to fund them, and that is “public ready.” It’s also well suited for a well-prepared private company looking to go public quicker and cheaper than the traditional IPO. But it’s not for everyone, especially retail investors who are less well positioned to evaluate the probability of forward-looking estimates of future revenue, and not able to withstand a significant reduction in value. Whether with a SPAC or an IPO, the year 2020 marked the reversal of the multi-year trend of more companies deciding to go private rather than public.
Louis Lehot is a partner and an emerging growth company, venture capital, and M&A lawyer at Foley & Lardner in Silicon Valley. He focuses on technology, digital health, life science and clean energy innovation for public and private companies, financial sponsors, venture capitalists, investors and investment banks. llehot@foley.com
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THE ANTITRUST LITIGATOR
Can an Antitrust Agreement Apply to Conduct in One Entity? By JEFFERY M. CROSS
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greement is one of two principal elements of a violation of Section 1 of the Sherman Act. It has been called the sine qua non of an antitrust violation. The Supreme Court has held that trial courts must first resolve whether there is an agreement actionable under the antitrust laws before turning to the other principal element of a cause of action, whether the restraint of trade is unreasonable. The requirement of an agree-
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ment is a critical requirement that distinguishes Section 1 of the Sherman Act from Section 2, which deals with unilateral conduct of a single firm. The requirement is necessary because the effect on competition from the conduct of a single firm may appear similar to the effect resulting from an agreement of two or more firms. Both may drive a rival from the market; however, to avoid courts regulating the conduct of a single firm, Section 2 also
requires that the defendant have monopoly power. The language of Section 1 is quite broad and could literally apply to all sorts of agreements including, for example, the agreement between a company’s CEO and a company employee on prices for the company’s products. The Supreme Court, however, has rejected a literal approach. To further distinguish Section 1 from Section 2, the Court has held that the agreement at issue must be between “independent centers of decision-making.” This requirement seems straightforward enough, but it can pose problems when applied to several situations, including an employment agreement between a company and employee that contains a restrictive covenant, and joint ventures between competing companies. A leading antitrust treatise has suggested a test that is helpful in determining whether there are two or more independent decision makers. This test asks whether one of the parties can effectuate the agreement by itself without any agreement of the other party. If so, there are not the plurality of two or more independent centers of decision makers colluding as required to have an antitrust agreement necessary for a Section 1 antitrust violation. There is only a single independent decision BACK TO CONTENTS
maker, which does not invoke Section 1. For example, in the situation involving the CEO of a company agreeing with one of the company’s employees as to the pricing of the company’s products, the CEO could effectuate the pricing regardless of whether the employee agreed or not. It would be valuable to apply this test to the two situations described above. First, consider the employment agreement that contains a restrictive covenant. Some courts have rather simplistically held that an
two different joint ventures. The Court, in unanimous opinions a little over four years apart, held that one decision did not involve an agreement invoking the antitrust laws and the other did. Analysis of the opinions illustrates the basic principles of an agreement between independent decision makers and application of the treatise test. The first joint venture was between two major vertically integrated oil companies to refine, distribute and market their refined products, like gasoline. They each contributed all their so-called downstream assets to the joint venture, such as refineries, tank trucks and gas stations. They also contributed their intellectual property to the joint venture, including the brands under which they had sold their gasoline to the public. They each exited their downstream businesses, although they continued to compete in the upstream market for oil exploration, production and shipping. Executives from both companies served on the board of the joint venture and shared in its profits. The joint venture decided to market its gasoline at retail under the same brands as had been previously used by the joint venture partners. It also decided to charge the same price for gasoline sold under the two brands. The Supreme Court held that the decision by the joint venture as to the prices to charge for gasoline was not an agreement invoking the antitrust laws. Rather, the Court held that it was “core” conduct of the joint venture. The treatise test can be applied to this conduct. Management of the joint venture did not need the two joint venture partners to agree
The test asks whether one of the parties can effectuate the agreement by itself without agreement of the other party. employee can never enter into an agreement with his or her company in violation of the antitrust laws. In so holding, these courts conclude that a challenge to a restrictive covenant in an employment agreement cannot state an antitrust claim. But if the test described above is applied to the example of the restrictive covenant, the result is that there can be an antitrust agreement. At the time of the initial employment, an employee and the company must both agree to the restrictive covenant. The company cannot effectuate such an agreement on its own. Next, consider two decisions frequently made by joint ventures: one to price its products, the other to enter into an exclusive license to manufacture branded products. These decisions were reflected in Supreme Court cases involving BACK TO CONTENTS
to the pricing decision. Although the competing joint venture partners were on the board of the joint venture, they had given up their intellectual property to the joint venture and the independent management made the decision regarding how to price the joint venture’s products. The second joint venture involved the 32 teams of the National Football League. Each team owned its own logos and team colors. They formed a joint venture to market their teams’ intellectual property. The joint venture decided to offer an exclusive license to a single hat maker. The Court held that there was an agreement invoking Section 1 of the Sherman Act. The key was that the individual teams continued to hold ownership of their individual intellectual property. Consequently, it was necessary for the joint venture to have an agreement from each team to proceed. Because agreement is a critical element of a Section 1 antitrust violation, it is important to know when there are the required independent decision makers necessary to find an actionable agreement. Sometimes, such independent centers of decision making can be within the same company or entity.
Jeffery Cross is a columnist for Today’s General Counsel and a member of the Editorial Advisory Board. He is a partner in the Litigation Practice Group of Freeborn and Peters LLP and a member of the firm’s Antitrust and Trade Regulation Group. jcross@freeborn.com
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CLIMBING THE LEGAL DEPARTMENT L ADDER
The Power of a Strong GC/CHRO Relationship By ANDREA BRICCA
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s companies formed crisis response teams to address the pandemic, the general counsel and the chief human resource officer were front and center. Teleworking, and the safety of the in-person environment for those employees who were required to report, were among the business issues that intersected GC and CHRO responsibilities. Our company’s contacts tell us that these officers spoke daily, often several times a day, to address changing demands. Then came the social justice movements in the summer of 2020, which once again brought GCs and CHROs together. They needed to address what employees wanted from their organizations and how their companies handled employee activism. They had to balance the employees’ quest for
the tasks associated with those actions, but with the benefit of legal advice. In daily operations, employees who have autonomy to immediately and creatively handle customer complaints need to be aware of the legal risks in regulated industries, so both legal and HR need to provide proper training. For the relationship between GC and CHRO to be successful, open communication, transparency, trust and understanding are required. The value each brings to the table is key for an effective collaboration that helps the company avoid risk and takes employees’ concerns into consideration. For example, the CHRO’s role in mergers and acquisitions is being recognized as important because HR policies can differ between organizations, and that can impact
Because the GC and CHRO see different aspects of risk, together they can provide a more holistic perspective. more advocacy and freedom of expression against the potential clash with management’s duty to protect the organization’s interests. The intersection of these two roles has been growing in importance, and the events of 2020 accelerated that trend. There can be tension between them, however, as it can be unclear who has ultimate responsibility for legal issues related to employees. That is because of the way employee issues and regulation often overlap. One important intersection is employee termination and reductions in force, where the legal ramifications of a mistake can be costly to the company. HR is responsible for carrying out BACK TO CONTENTS
the success of the deal. The CHRO understands the operational impact of those differences. Beyond the deal itself, the GC’s office is integral to all of a company’s policies. If the two are working in sync, then the deal will likely go smoothly and the transitions will be successful. GC and CHRO are two of the most important roles in the boardroom as well. Areas where a good relationship between the two is imperative (and becoming more crucial) are diversity, equality and inclusion (DE&I), and environmental, social and governance (ESG). These areas are increasingly scrutinized by boards, and an effective, united front between the GC and CHRO will lead any
required cultural change across an organization. As a GC or CHRO, you and your colleague should be in regular communication. This will be the basis of a strong relationship, and it can be further strengthened by presenting a united front in the areas where your roles intersect. Meet before management meetings and discuss the hot topics on the table. Make sure you agree on how to handle challenges. When the GC and CHRO find opportunities to collaborate and come together on critical issues, it adds credibility, impact and value to both as strategic partners. If you think about companies today and what is happening in the world, the affected areas of business should naturally lead to GC and CHRO partnering. Because they see different aspects of risk, together they can provide a more holistic perspective. Organizations and the people in them will benefit from their demonstrated unified leadership. Special thanks to Larry Krema of Allegis Partners for his insights and input on the CHRO front.
Andrea Bricca is a Partner with global legal search firm Major, Lindsey & Africa. She matches employers and lawyers to advance organizational and career goals. abricca@mlaglobal.com
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FEATURE
New Legislation Makes Panama an E-Commerce Hub By ANTHONY ROBINSON
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he coronavirus has claimed an unexpected victim — the independent international distributor in Latin American and Caribbean markets. Small and mid-sized manufacturers and brand owners of consumer-packaged goods are seeking to quickly regain the levels of performance they experienced pre-Covid. But retail consumer markets across the globe are in the throes of an economic downturn caused by the coronavirus pandemic. Recovery could take years. Our clients cannot wait for markets to recover fully. They are seeking solutions for nearterm revenue growth. We advise that a viable solution for small and mid-sized companies in the
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Association of Southeast Asian Nations, China, the European Union and the United States is accessing new customers in Latin America and the Caribbean (LAC). Also, we advise our clients not to repeat the same old mistake of entering the LAC region by the traditional method of appointing an independent local distributor. The seminal study performed on the relationship between the local international distributor and foreign manufacturers/brand owners by Harvard Business School Professor David Arnold concluded that these relationships are almost always doomed to fail because of the fundamental misalignment of goals between the parties. However, there is hope
for the small and mid-sized corporation that endeavors to enter LAC but is deterred by risky joint ventures and distribution agreements with local partners. The coronavirus pandemic, for all its negative effects, has reshaped consumer habits in Latin America and the Caribbean in favor of online shopping. Consequently, the LAC region is experiencing a significant acceleration in the growth of e-commerce penetration of retail sales. Also, the readiness of the logistics sector in the LAC region to serve e-commerce is at an all-time high, especially in the Republic of Panama, which has served as the logistics hub for the Americas for decades. This confluence of logistics BACK TO CONTENTS
and market factors has opened a window of opportunity for manufacturers and brand owners to disintermediate their quest for new customers in Latin America and the Caribbean, control their marketing in the LAC region at a strategic level, and thereby minimize the costs and risks of entering LAC. Although Professor David Arnold may have been premature in writing the epitaph for the independent distributor in the LAC region in 2000, the current rendering of the obit, which
The Benchmark Study found that Panama is the preferred hub for growth of e-commerce in Latin America, with an overall benchmark score of 90 percent. Miami came in second, with an overall benchmark score of 80 percent. The 90 percent score reflects the fact that Panama brings to bear a comprehensive set of capabilities and geopolitical advantages (i.e., dollar-based currency, stable constitutional democratic politics, the Panama Canal) rather than any one attribute. The empirical evidence indicates that Panama is ready today to serve as the preferred logistics hub for e-commerce in Latin America and the Caribbean. Foreign companies can sell direct to consumers and avoid the dysfunctionalities of the relationship with local distributors by consolidating cross-border manufacturing and logistics in Panama. Using Panama as the regional logistics hub, e-commerce businesses will be able to provide faster fulfillment times, enable the provision of endto-end services (i.e., returns and replacements), and provide higher quality customer service. Additionally, the Panamanian government passed legislation in August 2020 for a new investment regime for the Establishment and Operation of Multinational Companies for the Provision of Services Related to Manufacturing (EMMA). EMMA exemplifies the diverse and integrated investment regimes that Panama offers foreign investors. Foreign companies operating in Panama with an EMMA license enjoy significant tax, labor and immigration incentives, which
Panama brings to bear a comprehensive set of capabilities and geopolitical advantages, including some distinct tax advantages. is precipitated by the increase in retail e-commerce distribution rates post-Covid, may prove to be dead on (pardon the pun). From which city in LAC can a foreign business best execute a regional, direct-to-consumer, e-commerce business model that does not involve an independent international distributor? In 2019, DHL and the Panama Ministry of Commerce & Industry (collaborating as the Global Center of Excellence) published a white paper, E-commerce in Latin America. It benchmarks the strengths of Panama and other cities in the Americas that have traditionally served as logistics hubs in the region, regarding readiness to serve as the preferred hub for the growth of e-commerce in Latin America. Other than Panama, the hub cities studied were Houston, Los Angeles, Mexico City, Miami, Montevideo, Santiago de Chile and São Paulo. BACK TO CONTENTS
include a reduced income tax rate, a fixed capital gains tax at 2 percent, an exemption from import tax on all types of merchandise and immigration benefits. The EMMA investment regime is designed to tip the risk-return scale such that the decision to use Panama as a hub for a regional e-commerce strategy is clearly net positive. The combination of the superior e-commerce readiness of Panama’s logistics sector and the tax, labor and immigration incentives enjoyed by the EMMA license holders makes the execution of a direct-to-consumer model in the LAC region less risky than it has ever been and removes the need for an independent local distributor. In sum, an unexpected victim of the coronavirus is the independent distributor in the LAC region. Covid has permanently raised e-commerce penetration rates in the region at a time when e-commerce logistics readiness in Panama is outperforming other traditional logistics hub cities in the Americas as the preferred hub for cross-border e-commerce.
Anthony Robinson is Head of the Latin America and Caribbean Practice at YK Law. He advises clients on the regulatory requirements and strategic corporate considerations that affect the import, export, and distribution of consumer-packaged goods, including advice regarding the laws and regulations that govern advertising materials and related efforts to generate sales in Latin America and the United States. arobinson@yklaw.us
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FEATURE
A Business You Have a Contract With Files Chapter 11 What Do You Do? By JULES COHEN
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business in financial trouble may file Chapter 11 in bankruptcy court to get a breathing spell and try to settle its debts. While in Chapter 11, the business (now called a debtor) continues to operate its business under the eye of the bankruptcy court. If your company has a contract with that business, you may be surprised to learn that bankruptcy law requires you to continue to perform your contract. In return, the debtor must perform its side of the contract. If the debtor doesn’t and you want to terminate the contract, you must obtain the permission of the bankruptcy court before you terminate it. If you terminate the contract without permission of the court, you may be subject to a substantial fine for doing so. The reason is that the debtor’s interest in the contract is an asset that the court wants to protect along with all the other assets to give the debtor an opportunity to re-organize and come out of bankruptcy. Even if your contract has a provision that you can terminate it if the other party files bankruptcy or becomes insolvent, you still may not do so without court permission. But that provision alone will not be sufficient to allow you to get
contract before bankruptcy. If you terminate the contract before bankruptcy, when the debtor files bankruptcy the contract no longer exists, and you do not have to deal with the debtor. However, if you have not terminated the contract before bankruptcy, you must obtain court permission to terminate it after bankruptcy is filed. Once bankruptcy is filed, the debtor has the opportunity to cure the default and reinstate the contract. If the debtor wants to continue to perform its contract with your company after bankruptcy, it will file a motion to assume the contract. If it is in default, it must cure the default. When the court authorizes the debtor to assume the contract, the contract continues in existence after the bankruptcy, and both sides are bound by it. If the debtor does not want to continue to perform its contract with your company, the debtor has the option to reject the contract. If the debtor rejects the contract, the debtor is no longer required to perform it. Your company has a claim in the amount of its damages for breach of the contract and will receive whatever creditors receive from the bank-
must accept performance even if the contract prohibits assignment. However, if you relied on the debtor’s unique ability to perform in making the contract, you do not have to accept an assignment to someone else. For example, a baseball club that has a contract with a player who files bankruptcy does not have to accept an assignment of the contract to a substitute player to perform that contract. This area of bankruptcy law is complex. It is always prudent to consult with a bankruptcy lawyer about your company’s rights and obligations when a business you have a contract with files Chapter 11.
Jules Cohen is a partner and a former chair of Akerman LLP’s Bankruptcy and Reorganization Practice Group. He is Board Certified in Business Bankruptcy Law by the American Board of Bankruptcy Certification and is a Fellow of the American College of Bankruptcy. He has extensive experience in representing all parties in Chapter 11 bankruptcy cases and has served as a Chapter 11 trustee. jules.cohen@akerman.com
The debtor’s interest in the contract is an asset that the court wants to protect. court permission to terminate the contract. You would need another ground such as the debtor’s failure to perform its side of the contract. There is an exception. If your contract is to make a loan to the debtor, the court cannot compel you to make the loan after bankruptcy is filed. Suppose the debtor has failed to perform its duties under the BACK TO CONTENTS
ruptcy on that damage claim. The court will set a deadline for your company to file such a claim. Tenants under real estate leases and licensees of intellectual property have special protections upon rejection of their leases or licenses by landlords or licensors who file bankruptcy. The debtor may assign its interest in your contract to a new party. You JUNE 202 1 TODAYSGENERALCOUNSEL.COM
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