The defining characteristic of bet-the-company litigation is not simply the size of the claim, but the magnitude of its potential impact on the company. General counsel must assess bet-the-company matters through a broad business lens that considers the financial, operational, and reputational risk to the company. Organizations that recognize the risks early and engage leadership early and appropriately are most effective in navigating bet-the-company disputes.
Bet-the-company cases often involve transformative market exposure, critical intellectual property, regulatory enforcement, cybersecurity incidents, shareholder actions, or disputes that could jeopardize a company's license to operate. The earlier the determination of whether a case is being framed as bet-the-company litigation, the more effectively the company can align legal strategy with business objectives.
Identifying a Bet-the-Company Matter
In identifying whether a matter is a bet-the-company dispute, general counsel often consider the financial exposure and operational disruption, as well as the strategic impact and regulatory consequences.
The most immediate consideration in assessing whether a matter is a bet-the-company dispute is the potential financial liability. A matter may qualify as bet-the-company litigation when the financial exposure exceeds the company's risk tolerance, threatens liquidity, impacts financing arrangements, or creates material reporting obligations. Further, when litigation involves key products, patents, or market access that fundamentally affect the company's competitive position, general counsel is justified in flagging the dispute as a potential bet-the-company matter.
Litigation that is highly publicized should also raise concerns for general counsel. Highly publicized litigation can affect investor confidence, recruiting efforts, and stakeholder trust. This reputational harm is often one of the largest non-financial risks in bet-the-company litigation. Finally, litigation that consumes executive officers' attention, disrupts core business processes, or threatens critical partnerships is likely to be present in bet-the-company disputes. Key considerations for general counsel when identifying bet-the-company litigation include (1) establishing an early case assessment framework; (2) aligning legal strategy with business objectives; and (3) engaging the board of directors early and throughout the litigation.
Establishing an Early Case Assessment Framework
When a dispute presents bet-the-company risk, an early and disciplined assessment can help the organization better understand potential exposure and make informed strategic decisions. This assessment should include potential financial exposure for the company, the merits of plaintiff's claims, the merit of the company's defenses, and key evidentiary issues. This assessment should also address the likely litigation timeline, scenarios for settlement, and consideration of whether there is insurance coverage for the litigation. Finally, and most importantly, this assessment should highlight and identify the company's business consequences. The goal for establishing an early case assessment framework for bet-the-company litigation is to develop a realistic understanding of risks posed to the company.
Aligning Legal Strategy with Business Objectives
General counsel should consider the business's broader objectives in evaluating a bet-the-company matter. In high-stakes disputes, defining what constitutes a successful outcome often requires collaboration between legal, executive, and business leadership. Objectives to consider when strategizing with executive leadership are (1) preserving market access; (2) protecting intellectual property; (3) avoiding regulatory restrictions; (4) maintaining customer confidence; and (5) limiting precedent-setting outcomes. In bet-the-company litigation, legal strategy should always be connected to business priorities to protect corporate interests.
Engage the Board Early and Often
Bet-the-company litigation frequently falls within the board of directors' oversight responsibilities, and providing clear risk assessments, regular status updates, settlement evaluations, and significant budget and exposure developments is a key differentiator in outcomes. Communications with the board should focus more on practical business implications than pure legal analysis.
Coming Next: Selecting the Right Outside Counsel and Managing Communication Internally
In the next installment of this series, we will explore best practices for selecting appropriate outside counsel to work on high-stakes bet-the-company matters. We will identify characteristics general counsel should consider when selecting outside counsel. We will also discuss best practices for managing internal communications for a bet-the-company matter and will provide the pitfalls of poorly managed communications throughout the course of bet-the-company litigation.