Explaining Litigation to the CEO/Board of Directors
In the previous blog, we discussed what to do when your company has been sued, i.e., things you should do when a new lawsuit comes in the door. Equally important is what you should be doing a year or more into the lawsuit. In particular, how have you explained (and reported on) the litigation to your CEO and the Board of Directors?You can avoid a lot of frustration and second-guessing by taking the time up-front to explain the litigation process to them and providing regular updates thereafter. As you will likely need sign-off from the CEO or Board regarding many decisions, the better informed they are about the litigation – and the litigation process generally – the easier time you will have getting what you need and avoiding second-guessing on key decisions.
Here are the key things you need to do in explaining and regularly updating your CEO (including senior management) and the Board of Directors about important litigation:
1. Describe the process/Timing. One of the biggest mysteries about litigation to senior management is simply “what is the process” and “what are the time lines”? Lawyers tend to just assume everyone knows the basics of the litigation process. That is a mistake, and a big source of frustration and confusion for the CEO and the Board is simply not knowing how litigation “works.” Accordingly, one of the first things you should do is set up some time with the CEO/affected business leaders (and ultimately the Board) and walk them through the litigation process and the expected time lines. The goal is to create a re-usable document that you can update during the course of the litigation as dates change and as new items appear or get resolved.
2. Selecting outside counsel. You might think picking counsel to prosecute or defend litigation is left completely to the legal department but that is not always true. Be prepared to explain to the CEO/Board the reasons you selected the firm and always anticipate push back (though there may not be any). You should be able to set out the process you went through to select counsel (RFP, references, etc.) and be ready to explain your selection. It’s also a good idea to have your outside counsel meet the CEO (or the Board if the case is significant enough) very early on so they can get comfortable with the legal team.
3. Define success. Whether you are plaintiff or defendant, it’s critical to know what the company’s goals are with respect to the litigation. Defining these goals involves working closely with the CEO and the Board. Regardless of the goal you (and outside counsel) must take the time to truly understand and agree with the business/Board around defining success in the litigation. One suggestion is to commit the goals to a document called a “Definition of Success Memorandum” which, like all litigation plans can – and will likely– change over time. This memorandum acts as a measuring stick for Legal and the business to determine “how things are going” with the litigation.
4. Budget/Cost. A common area for surprises and unhappiness is the cost of litigation. This is especially true when you wildly surpass the budgeted amounts and/or the business has no advance warning about a budget miss. Consequently, it’s important to spend time upfront – and every month – working on a realistic cost estimate and keeping senior management up to speed on how things are progressing on the cost side (good or bad) and “why.” The key is to be open and honest about the cost and be able to show that you are using best practices to proactively manage costs.
5. Decision trees. At some point the CEO or the Board will ask you “What are our chances here?” or “What is our realistic exposure?” The best way to respond to this type of question is with a decision tree. Decision trees are useful because the business is used to them (and use them all the time) and they allow you to change variables/assumptions/numbers as the case changes. They can be simple or they can be complex.
6. Time diversion of management. Everybody is gung-ho when litigation starts, especially when they are the plaintiff. At some point, everyone starts to realize that big time commercial litigation is a slog and begins to question why the company is involved in litigation in the first place. It is very important therefore to educate everyone on the time diversion they can expect as the litigation moves forward.
7. Confidentiality. Courts in the U.S. lean heavily in favor of making almost all case materials public. The business needs to understand and prepare for this. Very early on you will want to set straight anyone who believes that litigation is confidential. It isn’t. You can tell your Board and executives that you will seek to file documents under seal, ask for protective orders, and file motions in limine before trial, but everyone needs to be realistic about the risk of poorly written or poorly thought through documents leaking out. Additionally, loop in the corporate communications team as they will need to prepare a media/employee communications strategy in the event any problematic documents or emails do become public. Finally, if your company is publicly traded, you need to prepare the CEO and Board for the requirements around describing material litigation in public filings (e.g., quarterly and annual reports, 8k).
8.”Why is this taking so long?” On television most litigation wraps up in 60 minutes. Sadly, the real world doesn’t work so quickly and many executives and directors are surprised by how long the litigation process can play out. Be frank about the fact that the pace of the litigation is not in your complete control. When you set out case deadlines or dates for the CEO/Board be sure to add the dates are not in stone and are subject to being postponed.
9. “The judge did what?!” This question underscores that litigation is messy and frustrating and, sadly, it’s not always fair. Prepare your CEO and Board for this potential problem. You and your outside counsel should do some diligence on the judge and determine how they have ruled in the past, their reputation in the legal community, their record on summary judgment, on being reversed on appeal or taken up to a higher court on a writ of mandamus, etc. As you gain experience with the judge over the course of the case, the report can be updated.
10. Regular meetings/Reports. Items 1-9 above all build up to preparing and presenting regular reports to the CEO and, as warranted, to the Board. You will develop your own form of report over time but it should include updates on:
- Timelines: where is the case in the timeline, what’s coming up, any changes in timing.
- Key motions: pending, contemplated, risk/reward, and results.
- Depositions: summaries of key “gives and gets” and overall rating of the deposition (e.g., a 1-10 scale).
- Budget: how you are tracking to budget, any changes in assumptions or any unexpected changes in spend (good or bad). You will want to update the CFO/Finance team more frequently on this item.
- Decision tree updates: use the most current information to add or take out claims, update percentages, damages amounts, and expectations.
- “Hot docs”: identify new documents that could significantly help or hurt the case and the plan to deal with them, and documents that could be problematic if made public (even if not really material to the litigation) and the plan to deal with them.
- Damages update: provide an update on the damages sought by either side, e.g., direct, consequential, punitive, injunctive, interest, and statutory.
- Settlement/ADR: updates on prospects for settlement (including proposals made or received) or alternative dispute resolution (e.g., mediation), seek settlement authority.
- Judge/Jury Research: updates on the judge and, if ready, updates on any jury research.
- Strategy issues: any key strategic decisions that need to be made or for which you seek CEO/Board input (key motions, jury waiver, subpoenas of third parties the company has a relationship with, etc.).
- “Definition of Success:” update your Definition of Success Memorandum and use the meeting as a touch-point to note how things are going and to consider any changes.
If your company is sued (or is contemplating suing another company) make sure the CEO and the Board understand what to expect during the litigation process. The fewer surprises and the more input they have into the case the more likely it is that they will feel comfortable and leave the day-to-day details to you and the legal department. Moreover, agreement on defining success will mean that when you “win” everyone will agree it was a great day.
If you have questions about this blog or need assistance with a litigation matter, reach out to Hilgers Graben at email@example.com.