Gregg Costa was featured in the Global Restructuring Review’s overview of the Jay Westbrook Bankruptcy Conference, discussing his thoughts on the Third Circuit’s recent decision.
Read the full article on Global Restructuring Review (subscription required).
A new powerhouse has surfaced in the energy deals market.
Gibson, Dunn & Crutcher has worked on more than $90 billion worth of energy deals so far this year, the highest of any law firm. The century-old, Los Angeles-founded firm, best known for its litigation practice, has steadily climbed the energy deals leader board since opening a Houston office more than six years ago.
Several Big Law firms have tried to plant a flag in Texas in the past decade to capture a share of the lucrative energy M&A market. Few have succeeded at the same rate as Gibson Dunn, which sits ahead of longtime local competitors and massive newer entrants in total number of energy deals so far this year.
“They entered with some really good, solid lateral groups from other firms, whereas other firms are not as patient,” said Tim Regan, a Texas legal recruiter. “Gibson’s success is based on who they started with, their foundation partners.”
Its position in the rankings is a product of the firm’s strategic move in 2017 to expand its oil and gas practice by investing in Houston, said Michael Darden, co-chair of Gibson Dunn’s oil and gas practice. Darden joined the office the same year from Latham & Watkins, another major firm whose success in the state is seen as a blueprint for outsiders.
“We have focused on very high-caliber and well-known attorneys who can develop business, have reputations and have relationships,” said Darden. “We started with baby steps but little by little we got on deals, then higher profile deals and more of them.”
“The Texas market is much more heavily relationship-based versus the work I’ve seen in New York, where they’re shopping law firms,” said Regan.
Gibson Dunn also hired Justin Stolte from Apache Corporation and Gerry Spedale, Hillary Holmes, Tull Florey, Shalla Prichard, James Chenoweth and Doug Rayburn from Baker Botts to build out its Houston team of founding partners.
Last year, it picked up Simpson Thacher & Bartlett investment funds partner James Hays, who launched the firm’s fund formation practice and advises on other components of alternative investment management in Houston. The firm in May added Kirkland partner Rahul Vashi, who counts Northern Oil & Gas Inc. and Devon Energy Corp. among his clients, to co-chair the oil and gas practice group with Darden.
The Deals
Gibson Dunn’s lawyers advised Pioneer Natural Resources in its $59.5 billion sale to ExxonMobil, a deal announced last month.
The firm in June advised Patterson-UTI Energy, Inc. on its $5.4 billion merger with NexTier Oilfield Solutions Inc. The next month, it represented Berkshire Hathaway Energy on its purchase of a stake in Cove Point LNG in a transaction valued at $3.3 billion.
It has also made a mark in the overseas energy market. In March, Gibson Dunn’s Dubai partners advised Abu Dhabi National Oil Company and ADNOC Gas on the IPO of ADNOC Gas, the largest-ever listing on the Abu Dhabi Securities Exchange (ADX). It was also the largest global IPO this year.
The firm’s rise comes in a down year for M&A, which drives revenue for many major corporate law firms. Energy deals have been one of the year’s few bright spots. That’s thanks in part to a pair of blockbuster energy deals in October: The ExxonMobil-Pioneer acquisition and Chevron’s $53 billion purchase of Hess Corporation.
The deals helped boost energy transactions volume in the fourth quarter of the year to more than $158 billion. That’s already the highest quarterly total in more than two years for transactions involving coal, oil, gas, pipelines, and alternate sources, according to Bloomberg data.
Commodity prices and stability are driving the surge, said Lande Spottswood, an M&A and capital markets partner at Vinson & Elkins.
“We had this period of pretty high commodity prices last year with Russia’s invasion, which really helped companies get their balance sheets in order and generate a lot of cash,” she said. “And then we’ve had this period of relative stability in prices, in equity, in valuations.”
The Competition
Vinson & Elkins has remained at the top of local firms that have long dominated the state’s energy market, according to Bloomberg data. It’s among the “Big Three,” along with Baker Botts, and Norton Rose Fulbright (previously called Fulbright Jaworski).
Several national firms have descended on the state in the past decade, seeking a share of the pie. Large corporate firms, including Latham & Watkins, which opened its Houston office in 2010 and Kirkland & Ellis, which followed in 2014, led the charge. Their sizable private equity practices and deep pockets dwarfed those of most local players. Wall Street’s Davis Polk, despite not having a Texas office, secured the second spot on the energy league tables, tailing Gibson Dunn.
Latham has also been among the most successful newcomers, according to Bloomberg data. The firm’s move into Texas—with lateral hires from across V&E, Baker Botts, and Akin Gump—was at the front end of a wave of Big Law moves into the Lone Star State.
“Latham was definitely the first to come into the market and they made some really big flashy hires, significant partners, and built a big office pretty quick,” said Regan.
Others have had a harder time making a mark.
Willkie Farr & Gallagher entered Houston in 2014, looking to flex its private equity power. The three partners who founded the office all left last year for different firms, among wider exits. Cadwalader, Wickersham & Taft closed its six-year-old Houston office in 2017 to focus on financial institutions instead of energy and commodities.
Looking Ahead
Gibson Dunn is among several major law firms that have tinkered with partner pay in recent years to try to attract and retain rainmakers, especially on the deals side. The firm’s top partners reportedly can earn as much $13 million per year.
The firm is still looking to grow its energy practice, which also has a presence in London and Singapore and recently expanded into the UAE, Darden said. It’s also likely to see new competition in Texas.
Clifford Chance, a UK “Magic Circle” firm, in June opened an office in Houston. The outpost launched with a 10-partner team focused on energy infrastructure transactions, including hires from Jones Day, Kirkland, and Latham.
“Especially with Shearman & Sterling’s merger with Allen & Overy and Clifford Chance opening in Houston, I think there could be a couple more firms opening offices in the future,” said Wendy Boone, a recruiter at Lateral Link.
Reproduced with permission. Copyright November 20, 2023, Bloomberg Industry Group 800-372-1033 https://www.bloombergindustry.com
Trey Cox recently spoke with The Texas Lawbook on Gibson Dunn’s growth in Texas, his practice, and advice for young attorneys.
Read the full Q&A on The Texas Lawbook [PDF].
Cynthia Mabry was interviewed by RealTransparentDisclosure.com, discussing the impact of the Corporate Sustainability Reporting Directive on US company’s SEC and sustainability reporting.
Watch the interview on RealTransparentDisclosure.com.
Eugene Scalia was quoted in Law360 discussing his high court debut and why it is important to him.
Read the full article on Law360 [PDF].
Eugene Scalia was featured in The National Law Journal discussing his upcoming first Supreme Court argument and the significance to him.
Read the full article on The National Law Journal [PDF].
Jonathan Phillips was interviewed by the Federal News Network discussing false-claims trends and recent settlements.
Listen to the full interview on the Federal News Network.
Ryan Murr was quoted in The Recorder discussing the increase in biotech companies doing reverse mergers to reach public markets.
Read the full article on The Recorder [PDF].
Gibson Dunn was featured in The Texas Lawbook for its growth in Texas, highlighting major hires, key matters, and significant transactions.
Read the full article on The Texas Lawbook (subscription required).
Monica Loseman was quoted in Law360 discussing the Supreme Court and how they will most likely weigh in on a derivative suit.
Read the full article on Law360 [PDF].
Theodore Boutrous Jr. spoke with The National Law Journal discussing if the Supreme Court will revisit The New York Times v. Sullivan, its landmark First Amendment ruling, and how we will continue to see the rise in cert. petitions.
Read the full article on The National Law Journal [PDF].
Cassandra Gaedt-Sheckter, Vivek Mohan, and Eric Vandevelde were featured in Law360 Pulse discussing how Gibson Dunn is at the forefront of AI by creating an Artificial Intelligence practice group and how they help their clients.
Read the full article on Law360 Pulse [PDF].
Abdul Kallon has a resume that plenty of his partners at Perkins Coie would love to have: He was a federal judge for a dozen years.
But since leaving the bench last year and rejoining private practice, Kallon has found that he needs his partners’ help to succeed at something he’s not done for over a decade: “business development.” Building a book of business takes time, even for a former federal judge.
Most of Kallon’s contacts from a previous stint in private practice are useless toward that end, he said, having either retired or moved into new roles. He didn’t do marketing as a federal judge. He was cloistered away from most of the legal profession, isolating himself to avoid the perception of bias.
Even if he brings a rare skillset to clients’ disputes—a personal understanding of how judges might view their case plus his own trial chops—he is, for now, largely reliant on his partners to bring him into cases or introduce him to clients.
“You essentially have to start from ground zero,” said Kallon, who was nominated to the bench by President Obama in 2009. “It takes a while for relationships to gel and foster to the point where people will call you routinely.”
Kallon, 54, is among a wave of former federal judges who resigned from the bench for Big Law over the past two years. The judges were all appointed at relatively young ages and are in their late 40s or mid-50s, meaning they still have long working lives ahead of them.
They’re different from retired judges, who often take part-time mediator jobs or serve as a sort of figurehead in law firms. They’re looking to build their own practices.
“We’re going at it as hard as any of the other partners,” said Gregg Costa, who joined Gibson Dunn & Crutcher in September 2022 after leaving the U.S. Circuit Court of Appeals for the Fifth Circuit.
These transitions are likely to become more common. Presidents have been appointing judges at younger ages, and those who take the bench before age 45 resign before reaching senior status at a disproportionately high rate, according to research from The Vetting Room, which tracks judicial nominations. During the Bush I, Clinton and Bush II administrations, roughly 11% of judges nominated at the age of 45 or younger resigned before reaching senior status, compared to about 2% for judges who were nominated at above 45.
Dating back to at least 2009, when a federal judge resigned citing a need to support his seven kids, many departing judges cite the discrepancy in pay between federal judges and law firm partners. US district judges will earn $243,000 this year. Partners at many firms earn 10 times that amount, and the gap is likely to grow as law firm profits surge.
For the law firms and their partners, putting a former federal judge in front of a client no doubt burnishes credibility. Former judges have a rare perspective that they say clients and colleagues often seek out.
But to maximize their earning potential, the judges will need to win business. Originating work is the coin of the realm in private practice, and it’s a skill these new partners haven’t practiced in a decade or more while they served on the bench.
“The work comes to you on the bench. People file lawsuits. It doesn’t work that way in a law firm,” said John Gleeson, a Debevoise & Plimpton partner who has a bit more perspective on the transition. He resigned from the Eastern District of New York in 2016, a position he held since being nominated by President Clinton in 1994.
“It’s a very competitive profession we’re in, and there are a lot of really good lawyers out there doing it. So you have to learn how to be more entrepreneurial. You don’t have a single entrepreneurial bone in your body when you’re on the bench.”
No Longer ‘Judge’
In interviews with four former judges who joined Big Law as partners in the past two years, the judges made clear the transition is about more than just trying to win work. And they all lauded their partners for helping to introduce them to clients and get work on cases early on.
They’re no longer called “judge.” Most insist the title should be retired upon resignation. They travel more, flying across the country to meet colleagues, clients, or attend conferences.
And they’ve been through the low stakes but nerve-wracking test of trying out old skills, like taking a deposition or addressing a judge, for the first time in a decade or more.
“I remember the first deposition I took on this side of things, and there was a certain nervous energy I had: ‘Boy, do I remember how to do this?’” said George Hazel, 48, who resigned from the US District Court for the District of Maryland to join Gibson Dunn a year ago. “And then at some point it did click in and it felt a little like riding a bike.”
For former judges, Gleeson said great expectations can make it difficult to appear back in a courtroom for the first time. Colleagues often set a high bar, expecting to be wowed by a former judge’s skills in a courtroom, he said.
“And then you have the experience that everybody else has, you get beat up a bit,” he said. “For me, that took some courage, because it’s humbling. Federal judges are not used to being humbled. Once you come off the bench, you better get used to it and it’s not easy.”
Finding Early Work
While most of the judges are just getting started on the sales and marketing aspect of a law firm partnership, they’ve all made appearances for major clients. Their first order of business in generating work is to build relationships with their new partners.
Gary Feinerman, who joined Latham & Watkins last year after resigning from the Northern District of Illinois, has appeared in cases on behalf of Meta Platforms Inc., online retailer Temu, and Instacart, according to court dockets.
He credited his partners for plugging him into cases, and said he’d also brought in some work of his own.
“It’s very important to be present and connect with people to remind them that I’m here and talk about the kinds of things that we can work on together,” said Feinerman, 58, who was nominated by Obama in 2010. “Fortunately, the culture’s so collaborative that colleagues were very generous in terms of plugging me into matters where I’d have something to add.”
Costa and Hazel are taking a unique marketing approach. The Gibson Dunn partners last month launched a podcast, “A View From the Bench,” that discusses their careers, their return to private practice, and the state of trials in America.
Costa, 51, has already argued two cases, including in bankruptcy court and an arbitration, he said. His earliest cases were the result of partners bringing him onto pitch teams, he said, though he’s had some success generating his own work.
Getting early trial work validated why he went back to private practice (to try cases), and it knocked off some rust, he said.
“And it’s nice to tell clients it’s something I’ve done recently,” said Costa, whose nomination to the bench by Obama was approved in 2012.
Mindset Shift
After resigning from the bench in Birmingham, Alabama, Kallon moved to Seattle, where his wife took a job. He chose Seattle-founded Perkins Coie in part because of its longstanding relationships to major clients in the area. He’s part of a team defending Google Inc. against claims brought by the Republican National Committee that the search giant throttled its email marketing messages.
The shift in mindset to promote himself and ask clients for work was “initially not as easy as I expected,” Kallon said.
“There are some very, very good lawyers out here in the private sector who’ve delivered extremely well for their clients,” he said. “So I need lawyers in my law firm introducing me to their clients and I need to convince these people they’re introducing me to that I’m equally as capable.”
One possible challenge for former judges is they haven’t developed a specialty in a particular area of law the way plenty of Big Law litigators have. They are generalists with trial expertise.
But they have the benefit of being seen as a unique resource for insights on how judges might treat a case.
Feinerman said clients or colleagues at Latham often ask him how a judge might respond to a certain case: “If you were the judge, how would these legal issues or these facts hit you? What would be the inflection point for you?”
And he’s been asked to oversee mock trials or moot courts from lawyers at other firms.
“I still get to play judge even if I’m not robing up to actually sit on the bench,” he said.
Costa said he teams up with specialists to make pitches to clients. His partners will advise clients on an area of law they’ve practiced in for 20 years, and he’ll provide the perspective of a potential judge or jury.
“It makes an effective pitch,” he said.
Hazel, nominated by Obama in 2013, said he wants to remain a generalist but he knows lawyers gain reputations and new business based on their previous success.
“Business is business,” he said. “You hope you’re successful in one type of case, and if that causes someone with a similar problem to come to you, that’s kind of how you build a business in this industry. I’ll go where the business takes me.”
Reproduced with permission. Copyright February 29, 2024, Bloomberg Industry Group 800-372-1033 https://www.bloombergindustry.com
Adam Smith was interviewed on NPR: WBUR ‘On Point’ discussing the Russia sanctions and the international community’s goal for the sanctions.
Listen to interview on NPR: WBUR.
Barbara Becker’s law firm was on an unrivaled growth streak when she took the reins of Gibson Dunn & Crutcher in early 2021. Becker quickly ushered in two major changes.
The 130-year-old firm revised its partner pay system to give more money to top rainmakers. Becker, its first woman chair, also installed a crop of relatively young, and more diverse, lawyers in key lieutenant posts.
Despite a quarter century of consecutive profit growth, the firm’s leaders were concerned how Gibson Dunn would fare in what’s become a hyper-competitive market for the world’s highest paid lawyers.
Under Becker, the firm bumped the spread between its highest-paid partners and their lowest-paid peers to about eight-to-one, up from about six-to-one. Top partners could now earn a reported $13 million a year.
The moves ruffled some feathers among longtime partners and Gibson Dunn has seen notable departures on Becker’s watch. The firm’s financial success has continued: Gibson Dunn reported another banner year of growth in 2022, with profits and revenue up by double digits.
“Last year was proof that our strategy is working,” Becker said in an interview. “The economic challenges are real for everybody and our peers are experiencing declining demand and profitability, yet we’re thriving.”
Gibson Dunn’s direction under Becker shows how even the most successful firms are responding to new competitive pressures, like some firms’ willingness to pay lawyers salaries that rival professional athletes.
‘The Glue’
Gibson Dunn is well known for a hard-nosed, “take no prisoners” approach that has made its litigators some of the most sought after in the industry, while drawing public criticism and occasional rebuke from judges.
The firm’s corporate department has made strides, securing work on deals from major private equity sponsors like KKR, Blackstone, and The Carlyle Group. Part of Becker’s strategy focuses on adding more dealmakers.
Becker, who starts her day at 5 a.m., often calls partners across the globe before riding her e-bike across Manhattan to the firm’s Park Avenue office. When making those calls from her home on the North Fork of Long Island, the goats Becker’s family tends can occasionally be heard in the background.
The M&A lawyer made her name at the firm representing major clients like Accenture, Kraft Heinz, and Merck. A mother of four, she also founded the firm’s diversity committee 20 years ago. She’s one of four women leading a Top 25 firm by revenue.
Ken Doran, the Los Angeles deals lawyer who ran Gibson Dunn for two decades, reached the end of his leadership stint in 2021. He had recently turned 65, the age at which the firm requires partners to step down from leadership roles.
Becker, now 59, landed among the finalists in a relatively informal succession process in which the field of candidates was whittled down and then voted on by a 20-member executive committee. The firm partnership voted Becker into the role after the executive committee’s recommendation.
Partners who backed Becker for the chair role often touted her efforts to support colleagues and mentor younger lawyers. Some firm leaders in interviews praised her for using a personal touch.
Kahlil Yearwood, a co-leader of the firm’s San Francisco office, said he wondered what he’d done wrong when Becker scheduled a monthly call with him shortly after she became chair.
“What I realized was she wanted to be the glue,” Yearwood said. “Barbara thinks her job is to help each person be the best version of themselves. Having a leader who connects the dots is incredibly helpful.”
Paying Legal Stars
Changes to the firm’s pay system were in the air at the firm even before Becker took the top role.
Under Doran, a group of partners convened in 2019 to study whether to revise its compensation system to adapt to the new, more stratified market for partner pay.
The law firm hadn’t fallen behind as much as others had raced into uncharted territory, paying star partners salaries that now stretch as high as $20 million a year.
“The bar continues to move up on compensating big contributors,” said Kent Zimmermann, a principal at law firm consultancy Zueghauser Group. “And that bar is being set by very large and very profitable firms.”
Gibson Dunn has the resources to play that game. Only three law firms boasted a larger profit pool than the nearly $1.6 billion Gibson Dunn generated in 2021, AmLaw data show.
The question was how those earnings should be divvied up among the firm’s roughly 350 equity partners. In an environment where outsize pay packages are increasingly common, could Gibson Dunn stick to paying partners relatively similar amounts?
Elite firms once viewed as immune to competition, like Wall Street’s Cravath Swaine & Moore and Davis Polk & Wardwell, have ditched their strict seniority-based pay systems to keep their stars and help recruit new ones.
New Policy
Before Becker was elected chair in March 2021, she and four others vying for the top position went before a large group of partners in a Zoom meeting. They were asked to describe what changes they would make, among other questions, according to two sources familiar with the meeting.
Becker told the group that compensation changes would not be major, the sources said. The system needed tweaks to remain competitive, Becker added, but the general structure should stay the same.
The new pay structure, rolled out in the Fall of 2021, remains largely similar to the previous system, according to the sources. Partners gain shares as they progress up the scale, and the firm kept in place the same cap at the highest end of 1,000 shares.
Through a one-time “share exchange,” partners were placed into a new pay tier structure that extended the highest and lowest ends of compensation.
Notably, “1,000-share partners” that have reached the highest threshold remain ineligible for bonuses, a stark departure from some firms that compensate high earners through large discretionary bonus pools.
‘Modest Change’
The changes—and the way they were made—have prompted whispers of unhappiness at Gibson Dunn.
One former partner who left after the compensation change said the firm adopted an “economic imperative” under Becker, even after she insisted early on that there would not be a “star system” at the firm. The person said most partners were not consulted in advance and the partnership as a whole was not asked to vote on the moves.
The approach clashed with the firm’s culture of “excellent” lawyering and collegiality, the former partner said.
Three rival law firm leaders said they’ve seen an influx of resumes from Gibson Dunn lawyers, litigators especially.
Big Law leaders are often loathe to acknowledge they’re driving big changes—perhaps it’s the lawyer’s urge to respect precedent, or that most firms have been financially successful over long periods of time.
Becker, in an interview, acknowledged some partners wanted more communication ahead of the changes, but said they were widely accepted—especially now that they’ve been in place for a full year.
“It really was a modest change, and it has served us well because it has allowed us to continue to attract and retain top talent,” she said.
The firm last year hired 29 lateral partners. The additions include former Texas federal appeals judge Gregg Costa, Apple Inc.’s former chief privacy officer Jane Horvath, and partners from rivals like Simpson Thacher & Bartlett, Kirkland & Ellis, Sidley Austin, and Cooley LLP.
Youth Movement
Becker also took on a delicate task for any law firm: elevating younger lawyers into leadership positions typically occupied by veteran rainmakers.
Naming new leaders for practices and offices was one of her first initiatives. The firm has nearly doubled the number of women or diverse lawyers on its top leadership committee, according to Gibson Dunn, and roughly tripled that figure for office or practice leaders.
“What Barbara has done is say to senior partners who’ve been business leaders for the past decade or more: ‘Your job is to enable and mentor the success of our younger talent,’” said Orin Snyder, a New York trial lawyer and member of the executive committee who plays a leading role in the firm’s litigation group.
“It’s a generational shift where the senior partner’s job is to accelerate the success of younger lawyers,” Snyder said. “It’s a paradigm shift.”
The biggest challenge to the transition came early in Becker’s tenure.
Star New York litigator Randy Mastro was approaching 65, the maximum age for executive committee members. Mastro, who’d represented New Jersey Republican Gov. Chris Christie in the Bridgegate controversy, was a vocal force on the committee.
He asked for an exemption to stay on, according to two sources familiar with the matter. Becker rejected the request.
Mastro left the firm for King & Spalding about a year and a half later. He declined to comment.
He said in news reports at the time that his exit was partly motivated by another looming age limit, the firm’s mandatory retirement for equity partners at 68.
Becker’s decision was emblematic of what leaders at the firm described generally as a willingness to make difficult choices with the firm’s long-term health in mind. In conversations about transitioning titles and clients to younger partners, she said she emphasizes the benefits to the firm.
“My north star is always: What’s best for the firm?’” Becker said. “And you can’t really argue with the fact that we do need to have a transition in leadership and our senior partners are an important part of that transition.”
The firm’s committed to competing for the best hires, she said, even if Big Law’s free agent era makes that an increasingly expensive endeavor.
“Our pipeline of hires is stronger than ever,” Becker said. “We’re in growth mode.”
Reproduced with permission. Copyright February 27, 2023, Bloomberg Industry Group 800-372-1033 https://www.bloombergindustry.com
Gibson Dunn was recognized by The American Lawyer for its 27th consecutive year of record revenue.
Read the full article on The American Lawyer [PDF].
The National Law Journal featured Jeff Liu discussing his first oral arguments which happened to be back-to-back adding a challenge.
Read the full article on The National Law Journal [PDF].
Maurice Suh was quoted in Law360 discussing the rise in sports law cases as the public spotlight grows on how teams and leagues are conducted.
Read the full article on Law360 [PDF].
The latest government guidance addressing artificial intelligence risks serves as a launch pad for compliance considerations and could signal regulatory and lawmaker action to come, attorneys say.
AI technology is being implemented across the business universe, for tasks such as resume screening and generating art, text, and computer code. With its rapid growth and adoption comes the potential for unintentional algorithmic discrimination and violations of intellectual property and other laws.
The AI Risk Management Framework, released Jan. 26 by the National Institute of Standards and Technology, offers the most comprehensive approach to date that companies can use to assess and manage the myriad risks associated with the implementation or development of AI, attorneys who advise clients on the technology said.
The NIST framework establishes a common language to understand and discuss AI issues for businesses and lawyers, and it offers insight into the government’s views on the fast-evolving technology that attorneys predict will drive an influx of regulation and legislation in coming years.
“It provides some plain-language guidance that I can hand over to a client to accompany the legal guidance that I might be giving them. It also, frankly, is a harbinger of things to come from the regulatory perspective,” said Kathleen McGee, a partner in Lowenstein Sandler LLP’s technology practice who previously headed the Bureau of Internet and Technology of the New York state Attorney General’s Office.
The framework, created by mandate in the fiscal year 2021 National Defense Authorization Act, outlines considerations that companies should take into account when measuring and assessing risks posed by AI. It also focuses on the structures a business can use to mitigate them.
However, the principles detailed in the framework—which the agency explicitly calls “non-sector specific and use-case agnostic”—may be viewed as too abstract by some, and it will take time to see how companies and practitioners adopt them in daily operations, attorneys said.
Risks, Benefits
Artificial intelligence, if left unchecked, has the potential to harm people, organizations, and even ecosystems, according to NIST’s framework.
AI can perpetuate systemic biases against individuals in certain demographic groups, enhance rising cybersecurity threats companies face, and disrupt the global financial system, the framework said.
The technology has already received regulatory, legal, and academic attention for concerns over employment discrimination, intellectual property violations, and cybersecurity threats.
NIST noted that many threatening manifestations of AI are yet to be discovered, underlining that its framework was designed with the flexibility to “address new risks as they emerge.”
Despite the risks associated with the technology, both the agency and attorneys emphasized that well-designed and well-governed AI can benefit companies and society by enhancing efficiency.
AI Compliance and Regulation
NIST was methodical in its approach to developing the AI framework, releasing two draft versions over the course of two years and seeking feedback from interested parties including industry, academia, and government voices. That resulted in the most comprehensive guidance on AI so far, one which serves as a useful tool to head off prescriptive laws and regulation in the future, attorneys said.
The framework is oriented around four basic principles: govern, map, measure, and manage.
“Govern” outlines basic considerations for building an internal structure of assigned responsibility and processes, the manage function establishes how resources should be allocated to mitigate the risks identified by mapping and measuring, according to the framework.
NIST’s focus on governance and management can help attorneys and clients understand how to put data they collect to use, and it underlines the need for identifying leaders who understand an AI technology enough to make appropriate decisions when a risk is identified internally, said Natasha Allen, Foley & Lardner LLP’s AI group co-chair.
The map function emphasizes the importance of documenting the segmented parts of an AI system to holistically understand how it operates, and “measure” encourages developers and implementers of AI to quantify the risks a technology could pose.
While the high-level ideas discussed in the framework may be too broad to easily apply to specific clients, the accompanying draft playbook includes more useful actionable suggestions, said Cassandra Gaedt-Sheckter, the co-chair of Gibson, Dunn & Crutcher LLP’s AI practice.
“It seems to be a helpful guide to navigating those four pillars or functions into actual practical design and development and deployment. I think, depending on the type of learner you are, it’s important to see examples and see practical applications of the framework,” Gaedt-Sheckter said.
The playbook will help Gaedt-Sheckter flesh out assessments of legal and societal risks that arise from AI technology, the results of which determine where companies prioritize their attention, she said.
A notable suggestion detailed in the framework’s playbook is to map out all of the third-party software and data an AI system relies on, Allen said. This allows companies to identify risks—such as biased data or insecure software—and how the third parties are mitigating them, she said.
Allen said she views the framework as a way for government figures to test the waters for developing laws by mandating NIST to develop a resource built on the insight of professionals who interact with complex AI technology every day.
Active regulators with the bandwidth and technical acumen are also going to start examining the impacts of AI, especially in the contexts of investor and consumer concerns, said McGee.
“I think you can expect them to turn to things like this NIST framework for action plans, really, on how to evaluate whether or not a particular entity becomes a target,” she said.
‘Balls and Strikes’
However, the framework doesn’t answer enough practical questions that clients are already raising as they intertwine AI technology into their operations, said Avi Gesser, co-chair of Debevoise & Plimpton LLP’s data security group.
Some companies, for example, are using AI to monitor the tone of customer service call complaints, which raises challenging questions about privacy and culture that NIST’s work doesn’t easily answer, Gesser said.
Gesser called the guidance a useful “issue-spotting document” that his firm may use to evaluate its existing AI compliance program.
“But for the practitioners, right, like if NIST after two years isn’t willing to make the tough choices about what is good or what is bad, how am I supposed to call balls and strikes here?” Gesser said.
Other AI attorneys also underlined the challenges presented by the lack of specific detail contained in the framework.
“It’ll take some time for all the practitioners and businesses to really dig in and digest it,” Gaedt-Sheckter of Gibson Dunn said.
The framework isn’t a checklist that companies developing or implementing AI can instantly adopt, and a lot is left to interpretation, said Brad Fisher, the CEO of AI company Lumenova.
That lack of specificity seems intentional on NIST’s part, with the framework noting that it provides “flexibility to organizations of all sizes and in all sectors.”
Another challenge presented by the framework is its voluntary nature, attorneys said.
Companies are aware that more laws and regulations governing AI are likely to come, so aligning their systems with a government-backed framework is a useful way to stay on top of what comes later, they said.
“The mistake, I think is to think that this is optional,” Gesser said.
Reproduced with permission. Copyright February 1, 2023, Bloomberg Industry Group 800-372-1033 https://www.bloombergindustry.com
Ronald Kirk was recently interviewed on Fox Business about the framework of the USMCA free trade agreement and its performance.
Watch the interview on Fox Business.