• 81% of respondents expect the number of disputes in 2023 to either stay the same or increase.
• 73% of respondents expect a form of ESG disputes to present a risk to their organization in the coming year.
• 52% of respondents expect employment disputes to present a risk to their organization in the coming year.
• 40% of respondents expect consumer / product quality disputes to present a risk to their organization in the coming year (up from 27% in 2023)
• Only 16% of respondents believed their organization were fully or very confident in their organization's current level of preparedness for litigation.
New research from Baker McKenzie, surveying 600 senior legal and risk leaders from large organizations (annual revenue greater than USD 500 million) based in the UK, USA, Singapore and Brazil, has shown that Environmental, Social & Governance (ESG) is the greatest disputes risk to organizations in 2024 (73% of respondents) with Employment replacing Cybersecurity and Data disputes as the second greatest disputes risk to organizations in 2024.
The seventh annual edition of 'The Year Ahead: Global Disputes Forecast, also highlights that 81% of respondents expect the number of disputes in 2024 to either stay the same or increase in 2024. Furthermore, the report also showcases disputes volumes in a variety of industry sectors: 89% of respondents in the Industrials, Manufacturing & Transportation (IMT) sector, 84% of respondents in Energy, Mining & Infrastructure (EMI) 83% of respondents in Healthcare & Life Sciences (H&LS) and 82% of respondents in the Consumer Goods & Retail (CG&R) sector expect disputes volumes to stay the same or increase in 2023.
Claudia Benavides, Global Chair of the Dispute Resolution practice at Baker McKenzie said, "The past year has been characterized by economic stagnation and geopolitical conflict. These trends look likely to continue. Despite these headwinds, most developed countries have not tipped into recession. However, in our survey, 30% of respondents expect the number of disputes in 2024 to increase. This year's top external threat remains cybersecurity and data privacy, closely followed by a varied group of concerns including supply chain issues, digital transformation, and growing regulatory and law enforcement scrutiny."
The Global Outlook
Against a landscape of slow economic growth and geopolitical uncertainty, respondents cite ESG disputes as the top litigation risk to their organizations in 2024 (up from second place in 2023). The breadth of ESG disputes is a growing challenge, as human rights and social issues are increasingly incorporated into the ESG agenda. Concerns about employment disputes are also significantly higher for 2024, with economic pressures forcing many organizations to restructure, growing pressure from unions, and expanding equal pay and pay transparency legislation.
Despite the risks, organizations still feel unprepared for litigation. Only 16% of respondents were fully confident or very confident in their organization’s level of preparedness for litigation. Furthermore, over three-quarters of respondents were concerned about an internal or external investigation next year. Cybersecurity and data privacy were the top concerns, reflecting stricter and proliferating requirements on organizations to notify breaches to regulators.
Key Disputes Issues
Environmental, social & governance disputes
Nearly three-quarters (73%) of organizations say that ESG disputes will be a risk to them in 2024. Recent years have seen a flourishing of ESG laws and regulations, many with extraterritorial effect. Disputes can involve tricky issues of causation, significant reputational risks, and difficulties with remedies: money doesn't always solve the problem. For many in-house lawyers, this puts them top of the agenda.
Environmental disputes continue to evolve. Our survey asked what types of environmental disputes presented most risk in 2024. Climate change litigation was the top response with 72% of respondents highlighting their concerns.
Climate litigation is likely to evolve as claimants turn their attention beyond greenhouse gas emissions to the importance of the environment more broadly. Litigation will increasingly encompass biodiversity loss, as claims attempt to rely upon the climate-biodiversity nexus.
Activists believe that this litigation affects corporate behaviour, even if claims do not succeed. It can also have a wider political impact. The current wave of climate litigation was cited in COP27 negotiations as a reason for establishing a damages fund for developing countries. For these reasons, the trend looks set to continue.
Our survey showed that almost twice as many respondents identified social disputes as a concern for 2024 (22%) as they did last year (12%). This may be related to similar large increases this year in concern over employment litigation. Treatment of workers is a major issue and will continue to be so. Organizations also continue to face dilemmas over whether and how to participate in high profile social and political movements.
Peter Tomczak, Co-Chair, Global Investigations, Compliance & Ethics at Baker McKenzie said, "ESG disputes are now a top-of-mind, practical litigation risk. In particular, the widening scope of ESG disputes means organizations should expect disputes on human rights and social issues, and should continue to evaluate their policies and reporting on ESG issues."
He continued, "Last year, we highlighted that organizations’ concerns over ESG disputes were changing, and that while environmental issues remained important, more attention was being paid to other types of risk. This trend has continued, with almost double the number of respondents highlighting 'social disputes' as a concern from last year."
The heightened focus on ESG, proliferating legislation around worker pay, ongoing economic uncertainty and increasingly active unions are all key factors fueling an increase in litigation risk for employers in 2024. 58% of respondents said equal pay/pay transparency would represent the greatest risk to their organizations this year. Restructuring/reorganization (40%) and severance agreements (32%) were expected to be the next greatest disputes risks.
Employers with operations in Europe will already be seeing the impact of the EU Pay Transparency Directive – which must be implemented by EU member states by June 2026 – as it raises the profile of equal pay and pay transparency rights and becomes a focus for trade unions and works councils.
In the US, Washington state saw the first test cases of proposed class actions against large employers alleging that companies failed to advertise the pay ranges and benefits required under state law. With robust new pay transparency legislation in other states and cities across the US and Canada, and more on the horizon, employers in the region could face a significant litigation threat.
Similarly, the increased use of AI in the employment life cycle together with regulatory scrutiny and existing legislation gives rise to risks for employers around bias, discrimination, misuse of AI, data privacy and automated decision-making. While specific risks under the EU's AI Act are unlikely to crystalize in 2024, this will continue to raise the profile of AI and related concerns.
Michael Brewer, Global Chair of Baker McKenzie’s Employment and Compensation practice said, "As the regulatory landscape shifts, employers worldwide must adapt. Likewise, global restructuring and reorganizations remain a complex and potentially contentious area for employers. The wide range of varying local requirements around employee transfers, notification, termination and other requirements, as well as variations in protected employee status, present significant risks."
Cybersecurity & data disputes
Cybersecurity and data disputes were a little lower down the list of respondent concerns this year but still feature at the top for investigations. We attribute this to stricter and proliferating requirements on organizations to notify regulators of breaches.
A wider range of organizations and industry sectors worldwide are being deemed providers of "critical infrastructure," and facing a greater range of obligations to defend against cyberattacks, increase operational resilience and report breaches.
62% of respondents saw operational disruption representing the greatest cyber disputes risk to their organizations in 2024. Accidental disclosure (54%) and external attack/hacking (51%) were expected to be the next disputes risks in this space.
The legal backdrop is also rapidly evolving. The US is working toward harmonization of various new cybersecurity proposals, taskforces and legislative efforts at both state and federal level, although no uniform federal regulation on cybersecurity is expected soon. China has recently consulted on a draft cybersecurity national standard, and EU member states have until October 2024 to implement the NIS2 Directive, aiming for a high common level of cybersecurity.
Cyrus Vance, Global Chair of the Cybersecurity Practice at Baker McKenzie said, "Among the 94% of respondents in our survey who say they are concerned about an internal or external investigation in 2024, two leading concerns have emerged: cybersecurity and data privacy. Stricter and proliferating requirements on organizations to notify breaches to regulators puts increasing onus on companies to be pro-active. We foresee a continuing heavy crossover between regulation and litigation related to cyber risk."
For the second year running, 20% of our survey respondents expect tax to be a significant risk. We continue to see year-on-year increases in the number, value and sophistication of tax disputes and audits. Geopolitical, economic and tax policy changes, coupled with increasing transparency and disclosure requirements, heap pressure on tax resources within organizations to respond to a spectrum of wide-reaching and complex tax issues.
According to the survey, tax disputes related to the global mobility of employees posed the greatest risk with our respondents (63%) while 49% viewed transfer pricing disputes and 47% considered indirect tax disputes as potential hazards in the year ahead.
Other significant changes in international tax policy are expected to be a major source of future disputes. The OECD's Pillar Two agreement aims to ensure that large multinationals pay a minimum effective tax rate of 15% in every jurisdiction where they operate. Globally, domestic tax regimes are being rapidly overhauled to comply with the model rules, including the redesign of complex features such as tax incentives, with many jurisdictions introducing legislation from the beginning of 2024. While the OECD rules, commentary and guidance are intended to ensure coordination and greater certainty in the application of the rules across jurisdictions, there is a significant risk that differences will result in how the rules are drafted, interpreted and applied.
Maria Antonia-Azpeitia, Partner and Head of the Tax Litigation practice group at Baker McKenzie in Madrid said, "There is mounting pressure on tax resources within organizations who must balance the trifold challenge of geopolitical uncertainty, economic volatility as well as shifting tax policies and disclosure requirements. One particular area of focus will be rising compliance and scrutiny of tax authorities in identifying issues and risk-assessing taxpayers vis-à-vis investments in data analysis, artificial intelligence and machine learning."
Global M&A volumes have been subdued since the 2021 peak, affected by the weak economic outlook and geopolitical instability. We continue to see disputes arise as deals made in haste during the boom fail to deliver against expectations. Common areas of dispute include purchase price adjustments, representations and warranties, indemnities, pre-contractual disclosure and post-closing cooperation.
When asked what type of post-M&A disputes posed a risk to their organizations, 34% of respondents said regulatory issues arising from a transaction would be most prevalent. A further 27% highlighted employment/people issues arising from severance packages or changes in compensation or benefits - a consistent theme of this year's report – and disputes around changes in management structure (22%) high on the agenda given increased levels of restructuring-driven M&A.
In regard to minimizing or preventing post-M&A disputes, the top response (26%) was to include dispute resolution mechanisms such as arbitration and mediation clauses in the contract to address potential conflicts. While this may seem obvious, well-drafted dispute resolution clauses, which are tailored to the deal and parties, can prevent disputes from escalating.
Respondents also pointed to the importance of detailed integration plans (24%) and post-merger monitoring (21%) which in practice should go hand in hand. Greater focus on monitoring should lead to identification of issues during the post-deal phase that could give rise to claims, allowing them to be managed appropriately.
Ed Poulton, international arbitration partner and managing partner of Baker McKenzie's London office said, "Regulatory disputes have clearly emerged as being top of mind when it comes to post-M&A disputes. Aside from the rise of merger controls threatening deal success, buyers also take on risks if they fail to discover regulatory or law enforcement issues through a lack of due diligence. Buyers should include well-drafted dispute resolution mechanisms such as arbitration and mediation clauses in the contract to address potential conflicts."
Antitrust disputes remain a global litigation risk factor, with continued increase in activity anticipated across all jurisdictions in 2024.
There has been no slowing down in the pace of antitrust class actions in the US and Canada, and collective litigation is now also prevalent elsewhere. Opt-out class claims are already available for all or some types of claims in the US, Canada, the UK, Australia, Israel, the Netherlands, Portugal and Belgium. Claimant firms, funders and litigious consumer associations are also active across these jurisdictions. Large damages awards and settlements are being made.
All industry sectors are at risk of claims grounded in antitrust, but there has been particular activity in 2023 in: technology, media and telecommunications; industrials, manufacturing and transportation; and consumer goods and retail. It is expected that these sectors will remain priority targets for claimant firms and funders in 2024 with a focus on targets deemed to have "big pockets" and potential liability for high-value claims.
Despite the risks, organizations still feel unprepared for litigation. Only 16% of respondents were fully confident or very confident in their organization’s level of preparedness for litigation. The largest organizations felt a little more confident than the smaller ones: the figure was 25% for companies with turnover of more than USD 25 billion, but just 10% for those with turnover of less than USD 1 billion. Organizations also lack confidence in finding the right services for litigation and arbitration support. These services typically include document review, legal project management, translation and transcription. Only 7% were fully or very confident on this topic.