To Sue or Not to Sue? – that is the question

All lawyers are aware of litigation risk and outcomes always hang in the balance. This certainly focuses the minds of legal advisors and their clients when considering whether to issue proceedings or defend. But the decision requires consideration of matters wider than the legal arguments.

By Stuart Leach, MD of Bell Pottinger’s Crisis & Litigation division 

With ever greater media interest in high profile or important cases, increasing court attendance and coverage by journalists, and the global reach and permanence of digital media, litigation poses a significant risk to the most important of assets – reputation.  The financial consequences of success or failure in the courtroom, or compromise through settlement, can be vastly overshadowed by the financial costs of reputational damage. Reputation and brand are not synonymous, but they are intrinsically linked, especially if they are part of a successful corporation whose business brand depends on a solid reputation. Many businesses’ reputations are linked to that of the CEO – and how they perform in court, for example, can have major repercussions for reputation even if the litigation is successful. A case can be won but a witness can still be criticised by a judge, or say something unexpected and ill-advised under the pressure of cross examination.

A claim may have great merit but the pursuit of it can make the winning a Pyrrhic victory.

One of the more famous examples of this is the “McLibel” case (McDonald’s Corporation v Steel & Morris [1997] EWHC QB 366), which is the longest case in English legal history, as well as arguably the most disreputable PR coverage for a corporate brand, despite winning in the court of law. The dispute was brought about when the defendants produced a damning leaflet about the company, which McDonalds responded to by suing them in libel. McDonalds made a fundamental error by not contemplating their stakeholder interests when deciding to sue, instead choosing to participate in the legal defence of their reputation but failing to see that in protecting their reputation as they did, they actually inflicted greater damage to it. Perhaps this was a case of the lawyers not discussing legal strategy with the communications team. Having said this it is questionable as to how much this affected their business; it doesn’t seem to have stopped the children of the world rushing to buy the latest Happy Meal with its free toy.

Whilst there is often reputational risk in litigation, it is important to determine whether it is a business critical reputational risk. This requires detailed assessment of the potential pitfalls. The reputation aware litigator will ask themselves how might the litigation be portrayed in the media? What is likely to leak and be of interest? And to whom? What might the other side put out? What is the existing media standing of the business, the brands and management? Which key stakeholders can cause damage, and which will not?

These are the vital questions to ask at the outset in order to develop effective plans to manage the risks.

By answering them and preparing to deal with the threats that these risks may become active, litigation can be engaged with greater confidence.

This is, of course, dependent on the nature of the case. Is it a high risk case, involving issues that are highly sensitive to public scrutiny such as health and safety? If so, pursuing litigation may actually draw attention to an aspect of the company that may cause long-term reputational damage that is difficult to rectify. The same is often true of employment cases that feature allegations about the conduct of a senior executive.  It is often said that it is six times harder to re-build a corporate reputation than it is to build it in the first place, taking 3-4 years to rebuild it after significantly negative media coverage. Warren Buffet famously acknowledged that “it takes twenty years to build up a reputation, and five minutes to ruin it”.

It is therefore vital that before deciding upon legal strategy the risks of that strategy to reputation are fully identified, and how they might be managed is comprehensively explored. If at all possible the cost of not managing those risks should be looked into as much as is possible. It is an inexact science – but it will create awareness of the potential downside. This may avoid a catastrophic worst case scenario of losing the litigation, paying a hefty costs order, and suffering a reputational hit causing loss of key customers and a drop in share price.

A related point is that careful analysis of the financial risk of the potential reputational damage will inform any negotiated settlement, helping to set a figure above or below which it is not worth fighting over due to the potential risks.

It is therefore vital for the media advisers and lawyers to work together, with both working to achieve the best outcome.

A holistic approach must be taken in order to manage the reputational impact of litigation. An example of this is the recent Thomas Cook tragedy where they dealt with the matter and subsequent inquest in a strongly legalistic tone and manner. They appeared to be more focused on not admitting liability than looking at how they should manage the situation as a caring and responsible brand. It seemed as if the communications advisors were outside the room whilst lawyers and insurers made the decisions. It may not be that surprising therefore that their reputation and share price both suffered, losing millions of pounds of bookings through reputation damage. A reputational risk analysis would have been invaluable. Asking the right questions at the outset would have helped to strike the right balance between media and legal objectives.

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