“The Fortune 500 corporations spend the equivalent of one-third of shareholder profits on litigation. This cost and the associated risk are not transparent to shareholders.” Met. Corp. Counsel, Vol. 16, May 2008 at 47, blares out this staggering claim by the President of eLawForum.
I decided to test the statement on DuPont, which is probably at the high end of litigation cost exposure. From 2004-06 huge company, beset by product liability and mass tort litigation, spent about $300 million inside on litigation plus $420 on outside counsel compared to $800 million on settlements and judgments (See my post of Feb. 13, 2008: 2004 to 2006 data).
During those three years, the total after-tax profits of DuPont (net income) were on the order of $7 billion (in 2006, $3.15B; 2005, $2.06B, and 2004 $1.78B). Not being a CPA, I do not know whether “shareholder profits” are the same as “net income.” If they are, then DuPont spent less than one-third of its shareholder profits on litigation, assuming $7 billion net income and $1.5 billion on litigation. Closer to 20 percent in fact.
If these DuPont numbers are reasonably accurate, and assuming DuPont is at the extreme end of total litigation spend, then the “one-third of shareholder profit” sounds exaggerated.