In-House Counsel

Lawsuits are not relevant in terms of 25 percent drops in share price

By Rees Morrison

I could retire if I had a dollar for every time someone mentions ?bet-the-company? litigation (See my post of Feb. 28, 2006: bet-the-company litigation, rare but often cited.). So, with some satisfaction, I pored over the chart in the ACC Docket, Vol. 26, Nov. 2008 at 62, which graphs 18 ?Primary Causes of 25%+ Stock Drops for 100 of Fortune 1000 Companies.? Way down at the end is ?Lawsuits? at zero percent. Zippo.

And heed the plural (?Lawsuits?): all litigation put together does not rock the boat of those large companies (See my post of May 4, 2005: event studies and patent litigation; June 5, 2006: claim that share price is influenced by general counsel?s decisions or appointment; March 10, 2006: lead paint litigation dropped Sherwin Williams? stock price 30%; July 25, 2005: litigation and share price; Nov. 5, 2006: shareholder derivative suits and share price; and June 14, 2007: firms lose 5% of share price when sued on a patent.).

Do not misunderstand my point. A drop of less than 25 percent can, of course, shake a corporate world. And litigation is costly, strategic, important, and difficult. But compared to business knockouts like ?competitive pressure,? ?cost overruns,? and ?customer demand shortfall,? even major lawsuits don?t cause a ripple on the stock market.

Full post as published by Law Department Management on January 18, 2009 (boomark / email).