More than half of enterprise companies have yet to implement cutting-edge legal technologies to assist with compliance tracking and management, but human resources may be here to help.
Legal and compliance departments that have failed to adopt critical technology systems of record to support their efforts should partner with their company's HR leaders to leverage existing software and find new tools to tackle the growing regulatory landscape, said Brent McDaniel, a Dallas-based partner at KPMG U.S.
Recently released research from Gartner shows that less than 50 percent of enterprise companies have implemented impactful legal technologies, such as contract lifecycle management and legal matter management platforms. McDaniel noted that it's nearly impossible to reap the benefits of emerging technologies without having the most impactful systems in place first.
"These companies are trying to run before they can walk," he said. "Companies that have not laid the proper foundation with more established technologies and skip straight to developing technologies with great promise, but less history of achieving results, never achieve the technology results they should and will become disenfranchised with technology in general."
McDaniel added that HR leaders should help compliance leaders in the selection and implementation of technology. Furthermore, HR, compliance and legal departments could leverage the same technologies because they perform similar tasks to meet different expectations.
"However, often these departments are not coordinated and act in siloes to implement different technologies for similar purposes," he said. "This causes unnecessary spend and technological chaos for the company."
One example of legal and compliance teams piggybacking on an HR tech platform to meet their own requirements is the potential use of Workday's Business Process Framework platform for handling conflict-of-interest disclosures, said Zack Hutto, an Atlanta-based director analyst in Gartner's legal and compliance practice.
By using Workday's platform, companies can easily build a business workflow that allows employees to annually self-certify that they have no outstanding conflicts of interest. If they do have one, the system also allows them to self-disclose if they believe something has come up in between annual certifications.
"We are seeing some compliance departments explore platforms that employees interact with on a frequent basis like Workday. That very simple business process in a workflow tool that employees already know is not only cheaper because companies already have the technology in place, but it's advantageous because employees don't have to learn and interact with yet another platform," Hutto said.
He added that it will be difficult for HR departments to assist legal and compliance departments with their digital transformation efforts or data analytics initiatives if they don't buy platforms that support legal and compliance efforts, such as contract lifecycle management and legal matter management systems.
"Legal and compliance departments should try to begin building data assets and data models through these technology platforms because everybody wants to be data-informed, data-driven, and pursue analytics—and none of that is feasible unless we have some of these very foundational baseline technology investments in place," Hutto said.
What's Blocking Technology Adoption?
There are several barriers to technology adoption. For one, McDaniel said legal departments were not given priority or budget for tech investments, which means they are stuck with manual processes or basic software solutions that left processes siloed, uncoordinated and vulnerable.
"This is changing in my experience, but there is still a ways to go," he said.
He added that the lack of skill sets within legal departments to leverage technology is another stumbling block.
"Many legal department employees still have an 'old school' view of how to execute their roles. They default to what they know, as opposed to making room for new technologies out of fear of being replaced by the technology," McDaniel said. "Legal departments are also starting to hire more varied skill sets to be able to better interact with IT departments, but there is still much room for improvement."
Tracking data to develop analytics that provide actionable information to help legal teams mitigate risks is becoming increasingly important as companies face more regulations and exorbitant fines that can hurt their revenue and reputation.
For example, in September 2022, 16 banks and brokerages were fined $1.8 billion by the Securities and Exchange Commission (SEC) and the Commodity Futures Trading Commission over their employees' use of messaging apps that breached record-keeping rules. Bank of America Corp., Barclays PLC, Morgan Stanley and Citigroup Inc. were among those that failed to properly keep records of electronic communications.
Further afield, violations of the European Union's General Data Protection Regulation (GDPR) are costing some of the largest companies in the U.S. millions of dollars. In 2021, Amazon was fined $887 million for violating the GDPR's data protection rules, while Facebook's WhatsApp was fined nearly $270 million for failing to tell Europeans how their information is gathered and used.
Other measures to expand regulation in new areas of business are being developed. For example, the U.S. Equal Employment Opportunity Commission is evaluating the use of artificial intelligence in hiring to ensure that its use complies with federal civil rights laws.
In the meantime, the SEC continues to work on proposed new requirements for climate- and environmental, social and governance (ESG)-related disclosures, which McDaniel said will add pressure on companies in areas that have not historically been viewed as risky.
"Government demands for increased transparency, information and reporting will put HR departments front and center as a risk area for many parts of ESG, which will increase interaction with their legal and compliance peers to properly manage these pending regulations," he said.
As the number of laws and regulations increases, it would appear that Gartner's recommendation that legal leaders establish or strengthen foundational systems of record, digitize manual workflows and transition largely analog risk management methodologies to the digital realm is worth following, but not everyone is jumping on board.
"I haven't seen this change much in the last year," McDaniel said. "I do see some clients looking into these opportunities, but the pace of change is still quite slow in most corporate legal departments."
Nicole Lewis is a freelance journalist based in Miami.