MoFo Perspectives Podcast
In this episode of MoFo Perspectives, MoFo partner and Coronavirus (COVID-19) Task Force head David Newman speaks with fellow partners and task force members Miriam Wugmeister, Janie Schulman, and Eric McCrath, to discuss the latest findings in the firm’s Impact Survey: COVID-19 and Easing of Stay-at-Home Orders.
During their conversation, David, Miriam, Janie, and Eric discuss important new findings in the report, including deeper insights into the areas of privacy & data security, employment and labor, mergers and acquisitions (M&A), and financial transactions, among others. The MoFo Task Force members offer their insights on these and other key issues to help clients understand how the next stages of the global COVID-19 pandemic will impact their businesses in the immediate and long-term.
For additional insights, read our Impact Survey: COVID-19 and Easing of Stay-at-Home Orders Survey.
Speaker: Welcome to MoFo Perspectives, a podcast by Morrison & Foerster, where we share the perspectives of our clients, colleagues, subject matter experts, and lawyers.
David Newman: Hello, and welcome to MoFo Perspectives. I’m your host, David Newman. And in this episode, we will discuss our recent COVID-19 impact study. I am pleased to be speaking today with my fellow MoFo partners, Miriam Wugmeister, Janie Schulman, and Eric McCrath. All three have been centrally involved in our firm’s COVID-19 task force, which I lead. Miriam’s co-chair of the firm’s global privacy and data security group. Janie is a member of the firm’s labor and employment group and a fellow of the American College of Labor and Employment Lawyers. Eric is co-chair of the firm’s global corporate department. Our COVID-19 task force has been counseling clients around the world across a broad range of industries to navigate the legal challenges and uncertainties posed by the COVID-19 pandemic. And our goal from the beginning when we started back in February has been to try to anticipate, and more importantly, to help our clients anticipate new legal issues and to help them see around corners. Let’s talk about some of those mission critical concerns, and Miriam, let me start with you. The new study indicates that legal risk concerns related to privacy and data security have more than doubled in just two short months since the previous survey was conducted. What do you believe is driving this shift?
Miriam Wugmeister: Thanks, David. I think there are really two different issues. One is privacy, and one is data security, so let me take those each in turn. With respect to privacy, I think the thing that is really driving the concerns for companies is that companies are all of a sudden expected to collect all kinds of new information: temperatures, contacts, contact tracing, information about individual’s health. Frankly, it’s information that most employers don’t want. And so a lot of employers are concerned about how are they going to balance the need to protect people’s health and wellbeing with the privacy issues, and what are they going to do with all this information, and do they really need it? And where are they going to keep it? So I think on the privacy side, there’s a whole host of questions because there’s new data, new information that employers are concerned about having to collect. On the data security side—
Miriam Wugmeister: —I think it’s a different set of issues there. There have been a ton of reports, and we’re seeing it as well in our practice, that the threat actors are very active. They are absolutely taking advantage of the rapid change to work from home and the really vastly changed work circumstances. So many of us now are interacting in new ways, whether it’s over video or interacting more online than we ever did before, and the bad guys know that. And as a result, there is a huge uptick in the types and the number of attacks on companies. The number of ransomware attacks is just exploding. And I think that’s also really giving companies a lot of concern.
David Newman: What can companies do to protect themselves and their employees in both the short term and also over the longer term?
Miriam Wugmeister: With respect to privacy, so what information companies are collecting, it’s kind of the mantra that we’ve been saying for a long time, which is less is more. Companies should really only collect that information which they really need, so for example, if you want to do temperature checks before people or employees or visitors are allowed into your facility, you should just collect the minimum amount of information. So that means you say, okay, anybody who has a temperature over a 100.4, can’t come into the building, and anybody who has a temperature below a 100.4 can come into the building, but you don’t actually write down Sam has 102 and Kathy has 98, right? It doesn’t matter because you don’t actually need to keep that information. The best thing from a privacy perspective that employers can do is keep the minimal amount of information that you actually need.
Miriam Wugmeister: And from a data security perspective, there are really two aspects. One of course is on the technical side. And that’s super hard to do in this environment, both because of constrained budgets and also completely changed way in which companies are dealing with their IT infrastructure now. But one of the things you can do from a vigilance perspective is many companies have antivirus and anti-malware and other kinds of systems that alert when there is unexplained or unauthorized activity happening in their networks. And one of the things we’re seeing commonly happen is companies miss those alerts. They see the alert, but they don’t escalate it. They don’t respond quickly enough, and it gives the bad guys an opportunity to get a foothold in their systems. So one thing a company can do right now is try hard to really be over—I’m going to say over respond—but I don’t mean it in a pejorative way, but be more skeptical of and react more quickly to any kind of alerts that look suspicious. In my view, right now, it’s better safe than sorry.
David Newman: And you’ve been talking to a broad range of companies across different industries and in different jurisdictions. What other preparations should in-house counsel and their legal teams be planning to mitigate these kinds of risks, and what other good practices are you seeing?
Miriam Wugmeister: For companies that are in multiple jurisdictions, it can be really challenging because it’s really easy to lose the forest for the trees. We are hearing from a lot of companies: what do I do in France as opposed to Argentina, as opposed to Japan, as opposed to Kansas? It can be overwhelming. The good news is that a lot of the rules are starting to coalesce. We are definitely seeing a kind of a rebalancing. I would say that in the first couple months, employers were very much like, oh my God, I have to do everything I can to protect the health and wellbeing of my folks, which is great. Obviously, employers were very concerned about their employees and their customers and their guests, but now we’re starting to see this little bit more of a rebalancing, saying you can protect the health and wellbeing of your employees, but at the same time, protecting your privacy.
Miriam Wugmeister: So we are starting to see, for example, like Norway yesterday said that the contact tracing app that had been put out didn’t actually protect privacy enough. So we’re starting to see this balance, same thing like I was saying with temperature. Yes, you can take temperature, but do it in a way that’s going to be respectful of privacy. And that’s really would be my bottom-line advice for clients, which is yes. Work to do what you need to do to protect the health and wellbeing, but do it in a way that still respects the privacy and protects the privacy of your employees because in the long term, that’s going to be really important. And then I guess my last piece of advice would be whatever information it is that you collect, keep it for the minimum amount of time you need it. If you are collecting temperatures or you’re giving people a questionnaire when you don’t need it, which is going to be in a very short period of time, get rid of it. So I realize that’s kind of like the bottom-line advice, David.
David Newman: Thank you so much Miriam, and Janie, I want to bring you in because we’re absolutely seeing the kind of rebalancing that Miriam is talking about. But as our survey shows, we are still seeing labor and employment considerations very much being front of mind. Two out of three study respondents say they anticipate their companies will face some type of employment-related litigation with the easing of stay-at-home orders. What key steps should employers be taking to protect themselves and to protect their employees during this time?
Janie Schulman: Thanks, David. Let me start by telling you what employers can’t do to minimize liability, and that is ask employees to sign liability waivers disclaiming any liability if they get COVID at work. A lot of employers have been asking about that, but it would be illegal under some statutes like OSHA or Americans with Disabilities Act, so that’s not an option. In trying to figure out how to limit liability, it’s important to know what kind of claims employers might expect. And we’re already starting to see some. So for example, we’re seeing claims based on employers not complying with OSHA guidelines for safety. Even though there’s no sort of direct right of action for an OSHA violation of a guideline, people are trying to come in other ways, so it’s important for employers to do the best they can in making sure they’re meeting all the applicable safety standards.
Janie Schulman: The other big kind of claim that employers are concerned about or should be concerned about are claims for employment discrimination. And this can arise in a number of ways, whether you’re deciding who to recall to work when you reopen if you can’t recall everybody at once, or if you can’t recall everybody, or things like can we just exclude employees who have disabilities or who are older because we don’t want them getting sick at work. And so it’s really important to remember that all the basic discrimination laws still apply to these kinds of decisions. So when you’re recalling folks, try to use criteria that are as objective as possible when you are making decisions about whether or not it’s safe for a particular person to come back. Be aware that the EEOC is saying it has to be a very individualized assessment, so you can’t just exclude entire groups of people. I think if employers take those kinds of steps, that’ll go a long way in minimizing the potential for viability.
David Newman: You raise a lot of great follow-up questions for me, which is one of the biggest concerns that I think employers have during this pandemic, at least those that I’ve been speaking with, is how they’re supposed to achieve the goal of complying with all applicable guidance when there has been frequently changing and sometimes conflicting guidance from state and local regulators. In that kind of regulatory environment, how can employers protect themselves when the rules and regulations are changing, and when there are times when they operate in multiple jurisdictions that might have even conflicting directives that are facing their operations?
Janie Schulman: You’re right. It’s really difficult, and the best way to approach it is to do what OSHA actually already requires employers to do, and that is to come up with a plan, to do an assessment of the risk in the workplace and come up with a plan of attack. Create a task force that is in charge of the return-to-work process and COVID-19 generally coronavirus issues so that you have people whose job it is to stay up to date on all the different regulations and guidance and the changes that come out regularly, and then keep going back to that plan to make sure that it complies with the guidance as it evolves. If you start out that way, it’ll be a lot easier to keep up with what needs to be done throughout what clearly is going to be a longer process than I think we all thought it would in the beginning, back in March.
David Newman: And we’re now at a point when in the United States and many other jurisdictions, we’re starting to see an easing or relaxation of the stay-at-home orders, and companies are therefore starting to bring their workforces back. As they’re doing that, what specifically are you seeing companies do that is a good practice or a practice to be avoided?
Janie Schulman: Sure. Employers are, first of all, looking at the guidance and making sure that they comply with all the safety measures that are being recommended. They’re looking at things like ensuring social distancing in the workplace, creating physical barriers between people, sometimes we’ve been seeing people putting up Plexiglas between cubicles when people work in densely populated cube areas, using screening for employees every day when they come into work, whether it’s by an oral questionnaire, a written questionnaire, or apps that are being specially developed for this purpose. As Miriam said, we recommend that people develop questionnaires like that in a way that protects privacy. Staggering shifts so that you don’t have so many people in the workplace at the same time, and sometimes that’s going to be absolutely necessary just so you can maintain social distancing. Working with the building facilities is really important to make sure that there’s a sufficient air exchange coming out of your air conditioning, that the water systems have been tested after a building’s been shut down for a long time. Face coverings are going to be crucial.
Janie Schulman: The more we hear about how they really, really help reduce transmission. And I think one other really important way to reduce transmission in the workplace is make sure that your sick leave policy is flexible. A lot of employees are going to try to come to work sick if that’s the only way they can feed their families, and by expanding paid sick leave, it will really give employees encouragement and comfort in staying home when they’re sick. And finally, employers, a lot of them are just talking about letting people continue to work at home. They are surprisingly finding, in some cases, that it’s quite effective, and by allowing employees who want to continue working at home, it obviously reduces the risk of transmission in the workplace.
David Newman: Thank you so much, Janie. I just want to bring in Eric, as well. Eric, unquestionably, the pandemic has had a dramatic, and in some ways, unprecedented, impact on the global economy, but the downturn has opened up some area of opportunity in the market. The study shows nearly one third of companies will likely make an acquisition of new assets during the next phase of the pandemic. Do you think this will be a continuing trend as more companies either sink or swim during the next stages of the response?
Eric McCrath: Yeah, David, great question. I’ll tell you that I do believe this is a trend that will continue. Sort of as the adage goes, there’s always opportunity in crisis, and the market is certainly sensing those opportunities as we sit here today, at least. In taking sort of an overall assessment of the market, we see any number of large strategics private equity sponsors that in many ways have been sitting on large cast positions over the past several years. We’re sort of at the tail end of a nearly dozen year-long bull run, as that proceeds. As you get near the end of it, certainly costs go up. The valuations have been sort of at all‑time highs, and that has made it very much a seller’s market. It’s been difficult for buyers to come in there and really take advantage of being able to buy assets at a discount or at an opportunity to be able to build them.
Eric McCrath: You’ve seen and probably read in any number of cases where these large private equity funds have been really sitting on cast positions. Large companies like Amazon’s and Apple’s have been famous for the large cast positions they are also sitting on. I think we’re going to see some of that put to work in the market as we go forward. There was an overall slowdown in deal activity in the second quarter. I’d probably attribute that to two things. First is all of this being a bit of a shock in a change to all of us, and for that reason, I think buyers took a little bit of a wait-and-see posture with respect to sort of larger macro-economic trends. And again, dealing with a situation that was in so many words unprecedented. The second piece of this I think is that there were just sort of inherent barriers.
Eric McCrath: What I mean by that is there were logistical challenges involved in simply deal making, especially folks where they want to get to know the company, want to get to know management teams, want to get to know the assets of a target. That is ultimately the end of the day is, to some degree, people do that on gut, people do that on personalities, people do that on trust. And those things require sort of getting on an airplane or direct engagement. And as that opportunity or those—the ability for us to do that fell off, I think it just sort of created an overall slowdown in what was going on. That said, maybe a couple of things that I think are going to change and make this more active as we proceed to the end of the second half of this year.
Eric McCrath: Number one, we’re seeing companies, venture-back companies, private companies in particular, needing additional cash, and they are going to financing rounds and attempting to get sort of the nest eggs necessary to weather the challenging economic climate they’re in today and perceive to be the case, certainly for the next several quarters. At the same time, they’re also looking to dual track that with potential M&A exits, to the extent that financing is not available or the financing’s not available on terms or the amounts necessary to get them through the challenges of next several quarters. We’re seeing a lot more engagement that’s been willing to occur there. In part, it’s prices coming down a little bit and making buyers realize that they can get involved and jump in on some of this. At the same time, I think we’ve seen buyers, as we’ve all of us have, just get more comfortable with the idea of I can do this over video conferencing.
Eric McCrath: I can do this telephonically. We don’t have to necessarily have the sit down over lunch or dinner and meetings in person to get transactions done. I think those two things will begin to make things come a little bit further together towards getting deals done. I have some optimism in the fourth quarter of this year, probably picking up and bearing fruits of third-quarter meetings and engagements that lead to more announced deals in that period. At the same time, though, folks are very much still a little bit in a lockdown position, so we can’t lose sight of that. And then I think it’ll take a little while for us to get all beyond that, but that said, more optimistic about what a Q4 or Q1 ‘21 looks like in the M&A markets.
David Newman: Thanks, Eric. I really appreciate those insights, and they very much align with three core takeaways for me from the GC survey, which this discussion today only reinforces. First, in comparison to where they were three months ago at the outset of the pandemic, there seems to be just more optimism in terms of the long-term recovery now that companies have had a few months to adapt to their ongoing COVID-19 business environments and to consider how they will continue to operate going forward. Second, the legal issues companies were originally focused on are now being reprioritized as legal departments are having to persist in making due with the resources that they have, and as new issues come forward as a result of evolving work environment, as some companies are continuing to manage those issues, even as they prepare to bring back people into their offices and plan for the next phase of the pandemic.
David Newman: And third, we’re just coming to realize that there is no new normal when it comes to this pandemic. There’s nothing normal about the current situation that we’re in, but companies seem to be encouraged by the progress they’ve been making to navigate the situation and by their ability to prioritize and reprioritize in the face of new developments and to mitigate what are really unprecedented risk to their businesses. With that, that’s the end of our MoFo Perspectives episode on our recent COVID-19 impact survey. Once again, I’m your host, David Newman, and I just wanted to give thanks to my MoFo partners, Miriam Wugmeister, Janie Schulman, and Eric McCrath. Thank you so much for joining us
David Newman: To read the full study and dive deeper into these insights, visit www.mofo.com/impactstudy.
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