Q: What could put your firm at severe peril of failure that has nothing to do with clients, markets, bank debt, partner flight, infighting at the top, or any of the other usual suspects?
A: A cybersecurity breach of your systems exposing confidential client info.
Yes, you’ve heard all about this before and yes, it’s recently been in the news (US Charges Three Chinese Traders with Hacking Law Firms,—The Wall Street Journal, 29 December 2016), but it’s 2017 and cyber(in)security is no longer new, surprising, or frankly excusable.
Lest you harbor any doubt, Preet Bharara, keeping his usual low profile, pointed to the firms—though not identified publicly, by every account they were Cravath and Wachtell—in announcing the break in the case:
Manhattan U.S. Attorney Preet Bharara said the case should serve as a reminder to law firms that “you are and will be targets of cyber hacking, because you have information valuable to would-be criminals.”
Legal-industry experts say law firms often lag behind their corporate clients in data-security measures, even though they are entrusted with valuable trade secrets, market-moving deal news and other sensitive information that is attractive to hackers.
Now, how long will it be before Mr. Bharara moves from warning law firms to prosecuting them? How much money would you bet on his indefinite forebearance?
Yet, on the whole, the consensus of informed observers is that Law Land is a few years behind corporate land in taking cybersecurity seriously. This demands that one ask, “Why would that be?” and I have an unflattering and a more-unflattering hypothesis.
The unflattering one is that law firms have only found themselves in the cross-hairs recently, or perhaps it would be more accurate to say they’ve only known they were in the cross-hairs recently. Serious cybersecurity also costs real money:
“Law firms aren’t necessarily committed to things that don’t make them money per se,” said Neil Watkins, the senior vice president of security, risk, compliance and privacy at legal-services company Epiq Systems.
You might think Mr. Watkins is being harsh, or speaking out of pure self-interest (Epiq offers data-breach response services). But the fact remains, per the ABA’s annual Legal Technology Survey for 2016, that only one law firm in three has a staff member specifically charged with data security, much less a full-bore CISO.
In the natural-resource industries, there is great prestige associated with what is known as “wealth generation.” But there are a variety of hazards that can put initially-generated wealth at risk, in extreme cases can obliterate it and leave residual liabilities. One of approaches to management of such risks is to have a “downstream” function for “wealth preservation;” a CISO (and her/his team) would fall into this category. What should not be surprising is that the downstream functions such as information security typically do not carry the prestige of the upstream functions. As Bruce’s entry indicates – “wealth preservation” must have an established role that ensures that its responsibilities are executed by the corporation/partnership. Surely, the shareholders, if you asked them, would agree.
Mark:
Thanks as always for your insights; a theme of Adam Smith, Esq. is that Law Land has much to learn from industries in the other 98% of the economy and this is a grand example.
You and other readers will see, however, in my forthcoming book Tomorrowland that the partnership model of organization, as implemented by the vast majority of law firms, stands astride the road to such sane firm hygiene as you propose, blocking the way. How so?
It severs any conventional tie between the interests of the the individual partners and the firm’s long-term health; partners are the ultimate self-contained portable assets. I imagine the only exception would be if Firm X failed because of such a spectacularly flagrant cyber-breach that individuals associated with it were tarred reputationally. But when potential lateral partner revenue is on offer, I fear memories are short.
In any event, you will see in the forthcoming book why I recommend that all but the most elite handful of firms abandon the partnership structure.
Thanks again.