Riding the Post-Bubble Wave of Woe
The boom in corporate litigation hasn't been good only for lawyers. It also has meant plenty of work for Boston-based Analysis Group/Economics, a consulting firm that specializes in providing independent assessments to companies involved in legal issues. Of the firm's 15 practice areas, litigation is the fastest growing, now accounting for about half of its $100 million in annual revenues.
While most consulting firms have been struggling for new business since the tech bubble burst in early 2000, Analysis Group, which was founded in 1981, boasts annual revenue growth of 35% for the past six years. Principals at the 250-consultant firm contend that its impressive performance is due in part to its culture, which compensates individuals for their team-building skills and success at collaborating, not just rain-making. But founder Bruce Stangle and President Martha Samuelson concede that the booming practice in litigation consulting has helped replace revenue growth that, a few years ago, came from work on mergers and acquisitions.
BusinessWeek Online Associate Editor Amey Stone recently spoke with Stangle and Samuelson about the increasing need for economic analysis in litigation. Following is an edited transcript of their discussion:
Q: Why is economic analysis playing a bigger part in litigation these days? Samuelson:
Q: Why is economic analysis playing a bigger part in litigation these days?
Samuelson:Economic analysis has always played a role in corporate litigation, but now the plaintiffs' bar is very active. There was [the equivalent of] a stock-market crash [after the bubble-market of the '90s], and there's a lot of litigation involved in the aftermath. There were business practices that didn't cause concern when the economy was booming -- but when it stops booming, it reveals the skeletons in the closet. Those things lead to litigation.
Q: What's your role in securities-litigation cases? Stangle:
Q: What's your role in securities-litigation cases?
Stangle:Often we're called on to calculate the damages faced by shareholders. At the early stages, we might tell a client what their potential exposure could be. They could use that information in deciding how much to settle for. Or we might take a look at the work an economist on the other side produced.
Q: What are the variables that come into play when determining damages? Samuelson:
Q: What are the variables that come into play when determining damages?
Samuelson:There is no such thing as a one-size-fits-all case. Issues we might want to think about include how the market was moving and whether the company lost value because of something it concealed or because the whole industry was losing value.
Or we might want to look at whether the company lost value because of information the market knew or because of information the company withheld. Often what one does in a securities-fraud case is look at the price of a stock before and after the fraud became known. The price may have declined for reasons that aren't in any way attributable to fraud.
Stangle: Intellectual-property and derivatives cases also frequently call for economic analysis.
Q: What are the economic issues involved in intellectual-property disputes? Stangle:
Q: What are the economic issues involved in intellectual-property disputes?
Stangle:Most often, these are patent cases. There we are also called on to assess damages. While scientists or engineers testify about the reach of the patent, we look at lost profits. If there is an infringer, how much have they taken profits away from the patent holder? Has there been price erosion? There are techniques for measuring these things. Or if the jury finds that a royalty should be paid, we might be asked what a reasonable royalty should be.
Samuelson: On complicated cases, we might use more than one approach, including building quantitative models and bringing in teams of experts in different specialties.
Q: What do you do if your analysis goes against the case your client is building? Samuelson:
Q: What do you do if your analysis goes against the case your client is building?
Samuelson:We're asked that question a lot. It's very important when we hire people and also for employee morale that they know they aren't going to be asked to take a position that makes them uncomfortable. If a client wants us to take a different position, we'll say, "No, we can't do that."
Stangle: We've been fired. We're not merely hired guns. We have to stand behind the product we put out. It's important that our analysis be known as high quality, that people feel we have integrity in our work.
Another consideration is that we work closely with academics. That requires an additional level of quality control that makes our product better and keeps us clear of engagements where you just don't want to be on a particular side.
Edited by Patricia O'Connell