Thursday, July 03, 2008

There May Be Trouble In River City Final Episode: Understanding

My guess is you are wrong –that statement shocked both me and my GC, but I began to think. What did a compliance program presume I was managing, and how did I know it was the cause of the problem? Suddenly, it occurred to me that it implied that we were producing and selling a lot of defective products, that was the bulk of the litigation caseload. “There is nothing wrong with our products,” my thought involuntarily verbalized itself. “I hope not,” said Superstar, “but that is where your analysis should start. Compliance programs only work where there is actual liability. These cases fall into what we call the Perry Mason Classic model. The other models are the Perry Mason Look Alike, where there are allegations of liability, but we believe none exists, and Government Policy Cases is the last model. The critical point is what you are able to control in the last two cases.”

My GC and I looked at each other, hoping each hoping the other had the answer. Suddenly my GC said: “Variable Transaction Costs.” “Exactly” said Superstar. “Now let’s get these cases modeled and if necessary I would like you to present me with a plan to control those costs.”

As we walked down the hall and were well beyond audible distance from Superstar’s office, I said to my GC: “How did you know-you did even sound like a lawyer with that answer.” “ACC blog” she said. “This blog, E=MC2 for In House Counsel. It had a formula that described how one could calculate settlement values, and what it demonstrated was that if transaction costs, which are the variable costs of defending a case, are high particularly in comparison to the litigation risk, those costs start determining your litigation strategy. It never occurred to me before but you could think you are saving money by settling a case and reducing your legal expenses, but its your high transaction costs that are driving the settlements and creating an incentive for illegitimate litigation. Without significant controls on defense costs, our management of litigation could be severely crippled. We need to have a structure that makes it economical to try these cases and that alone may result in fewer cases”

My GC stopped and looked directly at me. “Two things-- we are going to talk to those professors at Superstar’s business school about doing some in-house training for the law department and I will being accepting Professor Prestige’s invitation to speak at my law school and let them know what is going on in the fly over zone.”

- Larry Sailbra
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1 comment:

sexy said...