The value of litigation risk management

93 percent of our interviewees encouraged sound corporate governance principles to limit potential liability at every stage of a subsidiary's life. In the words of Miles D. Scully, a litigation partner at Gordon Rees, “The extent to which a company keeps its corporate formalities in check can affect everything, starting with whether or not you have the right to sue (or the right to defend) in a court of law.”

Another takeaway from our interviewees-judges or juries could interpret poorly handled LEM as deceitful actions. It could influence perceptions in litigation, potentially leading to claims of intentional spoliation. Interviews revealed that 87% of respondents acknowledged LEM's impact on judicial perceptions, with 100% of lawyers encountering such risks affecting litigation strategies. Missing incorporation filings hinder advocacy and may result in uncomfortable deposition moments or even push towards early settlements, often on unfavorable terms.

The other theme that surfaced from our interview is that poor LEM can lead to cases being litigated in less favorable jurisdictions, potentially ending up in state courts instead of federal courts due to the presence of subsidiaries. 80 percent of respondents reported having experienced such suboptimal jurisdictional outcomes, highlighting the substantial litigation risk associated with loose or dormant subsidiaries. Properly managing subsidiaries, including closing dormant ones, is crucial to mitigate these risks.