The worst settlement is sometimes better than the best judgement.

Occasionally, regardless of how hard it may try to avoid it, a company finds itself involved in a lawsuit either as a plaintiff, a defendant or a third party. When this occurs, dealing with such a situation in an objective manner sometimes becomes difficult with business sense being blinded by antagonistic personalities, emotions and short-term objectives that may be as basic as showing up the other party. Litigation Risk Management addresses this by taking an objective approach to the debate and establishing objective criteria to help a company choose its best course of action.

The objective criteria are based on variables taken into account because of the incidence that they have on the final outcome of litigation. The first criterion consists in examining evidence, law and jurisprudence to determine the strengths and weaknesses of each party’s case. This will give an indication of the opportunity for a successful outcome in the legal perspective.

The next criterion consists in examining the direct and incidental costs attributable to the litigation. This can include items like legal fees as well as time and resources allotted to the matter by employees. This will give an indication of the resources that are monopolized by the litigation.

The following criterion looks at overall gains and losses that are derived from the litigation. Elements examined include fluctuations in the value of the company’s good will, reputation, publicity generated by the litigation, public opinion, share valuations. Although attributing values to some of these elements can be difficult, they do nevertheless have a bearing on a company involved in litigation.

Another criterion concerns company expectations of overall gains and losses achieved from litigation. What does the company hope to achieve? Is the objective to establish a principle, set an example, recover a debt, test the limits of a law? This will provide a better comprehension of the actual costs that it should be ready to support and will have an outcome in the final litigation risk management assessment.

Finally, an examination of scenarios is made concerning after-effects. What will be the after-effects of the litigation in the event of a favorable decision? Will it guarantee more revenues, provide greater protection, remove sources of uncertainty? What are the after-effects in the event of an unfavorable decision? Will it cost more more money? Will it prevent the continuation of business?

These and other elements are examined in a holistic manner and, using specially developed risk management software, attributed pondered values according to the relative importance of each criterion.

The end result is a detailed analysis of the pros and cons of continuing or settling the dispute based on short, medium and long term-effects analysis based on the law, goals and desired objectives of the company.

In certain cases, the end gain of a litigation process is more costly than the expected return. When that is the case, settlement is more profitable. In other cases, the cost of litigation becomes worthwhile given the financial repercussions of unsettled issues. In these cases, even though litigation at its face value might not be justified, the end justifies the means.