VideoMost chief financial officers don't expect a day's work to involve being a key actor in a courtroom drama. But with a rise in claims against corporations and renewed litigation accompanying today's surging mergers activity, they'd better get prepared.
At least that's the view of such attorneys as Richard A. Rothman, litigation partner at Weil Gotshal & Manges LLP, in New York, and the author of Litigating Complex Cases: From the Inside Out. Says Rothman: "Senior corporate officers involved in significant decisions are constantly in the line of fire in litigation. They are constantly being deposed."
Lawyers note that class-action suits against corporations, which typically must show senior-executive involvement in order to create a national-based claim, are a growing source of executive testimony. And claims by shareholders, which focus on a company's financial information, almost always involve CFO testimony. Merger litigation is another area in which CFO testimony is critical. For example, in a bitter hostile- takeover battle for a Canadian subsidiary of France's Sommer-Allibert, Armstrong World Industries is suing Sommer for breach of confidentiality during their collapsed merger talks. At a preliminary hearing in October, CFO Frank Riddick, who had been in direct negotiations with the French company, was one of three executives who testified that Armstrong was led to believe it was in exclusive talks with Sommer. That company broke off talks and agreed to a merger with a Germany company, Tarkett, earlier this year.
TRUST YOUR EXPERIENCE
Rothman says that most senior executives, including CFOs, make good witnesses. "Senior people are senior for a reason," he says. "They have talent, and it is usually the kind of talent that lends itself to making them good witnesses." Most cases involve matters that are complicated to outsiders--in this case, judges and jurors. Those in which the CFO is brought in often involve financial claims, and have a slew of corporatefinancial information that must be explained to the court.
Key to success is the ability to communicate, which is the first hurdle many finance executives must overcome. "Sometimes they have a hard time explaining what they know in a way the jury will understand," says Melvin Brosterman, the litigation partner at Stroock & Stroock & Lavan, in New York. He says that's because "people who work with numbers can be precise to a fault." To get around the problem, Brosterman often sets up shadow juries, people from a broad spectrum of society who examine the CFO's witness testimony ahead of time and give pointers. As a last resort, he has brought in so- called witness coaches, who are experts in helping people make public presentations, to prepare senior executives for trial.
Not all CFOs need such assistance, however. In today's business world, there are an increasing number of high-profile CFOs who spend a good deal of time explaining the business to outsiders--analysts, boards of directors, reporters--and have an easier time performing in court. "They are used to operating under pressure, and they are used to having to be both tactful and truthful," says Rothman.
Consider the experience of Mike O'Donnell, CFO of Columbia Gas, a utility based in Reston, Virginia. Because utilities are regulated, O'Donnell often has to testify to regulatory boards on such issues as cost of capital and revenue requirements. And he had to testify when the company entered bankruptcy proceedings in 1991.
"Having testifying experience early on at the regulatory level helped me realize the importance of presentation skills," says the CFO, an economist by training. Still, he says, testifying in court "can be a very intense situation. The stakes are high, and if you make a mistake, things can really get out of hand."
The biggest problem he had was "remembering something incorrectly." Practice is important here, says O'Donnell. "The thing that helps you most is practice and experience doing it. Then you can get past the nervousness and focus on the business at hand." His advice: "Trust your instincts and knowledge of the subject matter." (For other tips on testifying, see box at right.)
Much to a CFO's surprise, he or she may find that juries and judges are eager to have such powerful, articulate people in the courtroom. "Senior executives are viewed as interesting and exciting," says Rothman. "The jury has a heightened curiosity and is perhaps expecting to be entertained by the testimony," adds Michael Hirschfeld, litigation partner at Milbank, Tweed, Hadley & McCloy, in New York.
However, the flip side of that power is arrogance--another potential pitfall of a corporate executive's behavior in litigation, both in depositions and on the stand. (For advice specific to depositions, see box, facing page.) Leona Helmsley's comment about the "little people," while she was on trial for tax evasion, is one of the more famous examples of arrogant behavior that infuriated a jury.
Here Rothman advises finance executives to treat both judge and jury with respect. In the case of the judge, Rothman reminds CFOs that no matter how cordial he or she may be, the judge is not "a friend"--any more than opposing counsel is.
As for jurors, says Rothman, many business executives have the misguided view that they are stupid, unsophisticated, and not able to understand the witnesses' testimony, or that they are predisposed to dislike big corporations generally, and top executives in particular.
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