Most 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.
But if you testify truthfully and make an effort to engage and help the jurors without appearing condescending, Rothman says, you’ll do well. If the CFO genuinely respects and “nurtures” jurors’ appropriate feelings of importance and power, they will often respond well and place significant weight on credible testimony. “The jury is the most important audience,” he says. So, CFOs “to the extent possible, should talk and explain things to the jurors, not to the lawyer.”
Arrogance and anger also come up when litigants refuse to settle. “When people have a massive dispute, they are extremely angry,” says Rothman. “Plaintiffs feel like they’ve been taken advantage of and want revenge.” He believes that people want both an apology and a vindication, and look to the legal system for them even though it is extremely expensive and doesn’t yield the “clear sense of revenge people are looking for.”
Rothman suggests, however, that the economic perspective of a finance executive can be useful in navigating through such mine fields. “More cases ought to be settling, and they ought to be settling earlier than they do,” says Rothman. “One role for a CFO in a lot of these situations is to make sure the company isn’t continuing to litigate because the executives are angry. When you think of the anxiety and the diversion of time and creative juices that the process zaps from a company, it’s very substantial. And what is the dollar figure on the legal bill?”
Anger can also show up on the stand. “One of the worst things you can do is lose your temper,” says Rothman. The problem is that senior executives are generally used to being in control. “They are not used to having people force them to answer their questions, particularly if they are stupid or disingenuous questions. And they are not used to being in situations in which the consequences of losing your temper are so important.” It is often the job of opposing counsel to try to provoke just that type of anger.
CFOs can be prepared for such ambushes, since much of a cross-examination will depend on the type of questioning the judge allows; your lawyer should be well acquainted with this. Particularly problematic, says Rothman, is a line of cross-examination that calls for only yes or no answers based on hypothetical questions.
The best approach here, says Rothman, may be to give only the requested yes or no answers, to offer virtually no explanations, and to wait patiently for your own lawyer’s redirect questioning to rescue you.
If you’re allowed to give brief explanations, however, an aggressive response to the cross-examination can be a potent weapon, says Rothman. In trying that, however, the CFO should first give a direct answer to the lawyer’s leading questions, and avoid long-winded explanations that sound evasive or that unduly disrupt the cross-examination. By proceeding in this way, Rothman continues, “the witness will be communicating to the jury that the lawyer is playing games and that the leading questions are preventing the truth from emerging.”
SPEND THE TIME
As for surprise questions, says Rothman, keep in mind that they are usually “mere gimmickry masking a lack of merit” and that you have far greater knowledge and credibility than the opposing lawyer with respect to your own business and the world of business in general.
Of course, preparing to take the stand takes time, which is one of the biggest problems facing CFOs, says attorney Michael Hirschfeld. “Most of them hate litigation, and some hate it to such a degree that they will not set aside more than half an hour to prepare.” Goal-oriented executives tend to view litigation as an unproductive use of time, he suggests.
Rothman says the most important quality of a good witness is that he or she be “honest and likable.” But that doesn’t mean you have to come across as a “sweet” person, a term not often used to describe the high-octane personalities of top executives.
He points to the testimony of AMR chairman Robert Crandall, whom he represented in a predatory-pricing case in Texas in the early 1990s. AMR, the holding company for American Airlines, was sued by competitors Northwest Airlines and Continental Airlines, which claimed that a new pricing structure introduced by American was designed to drive other carriers out of business and eventually raise fares for consumers–a monopolistic practice that is difficult to prove in court. Crandall testified about why he thought the new fare structure would benefit customers, drawing largely on a presentation made to the company’s board of directors before the fare was instituted.
Says Rothman: “Anybody listening to Crandall for 10 minutes is likely to conclude that this is a very tough competitor. But he comes across as a credible guy who is working his tail off for his employees, shareholders, and the company. Whether he wins the peaches-and-cream award is not that important.”
Any senior executive has “got to be believable. You’re dealing with complex issues. There’s a limit to what uninitiated people can understand, so they are going to gravitate to witnesses who they think are the honest brokers of information,” the lawyer continues. He believes one way to make that happen is to be willing to concede on some issues. “A lot of people think the way to win is to never admit to something, but todefend every inch of turf at all costs,” Rothman notes. But he says the willingness to make concessions actually enhances one’s credibility, and believes it was one of the reasons Crandall came across so well in court: “He was good at conceding points that were meritorious and in explaining when points raised by the opposing lawyers didn’t jibe with the real world.”
In the case against American Airlines, for example, the competitors’ counsel found a memorandum in which Crandall had written, “Crush Pan Am.” Crandall admitted to having produced the memo, but he was able to convince the jury that such language was just normal competitive bantering, and he brought out other instances in which he had used such tough talk without malicious intent.
There’s only one way to make such a good impression, says Rothman: “Tell the truth and let the chips fall where they may. With E-mails and Xeroxes recording everything we do and say these days, it’s very hard to fabricate a story. And if you do, it’s easy to get caught.”
“If the facts are on your side and it’s a financial case, and if you’re a smart CFO, nobody should be able to cross you up,” says Brosterman. Financial records, from prospectuses to balance sheets, speak for themselves.
But complex cases are often not black and white. “If there are 9 or 10 areas of dispute, your company may be strong on 4 or 5 of them and weak on 2 or 3. If you’re really weak, then figure out the best way to get the case settled,” counsels Rothman. “A CFO can do a sober risk analysis right up front. What are the chances of winning and what are the chances of losing?” After all, the lawyers concede, they can’t perform miracles.
Michelle Celerier is a writer in Croton-on-Hudson, New York.
A TIP SHEET FOR WITNESSES
15 COURTROOM DOS AND DON’TS
———————————————————————— ————— 1 Tell the truth.
2 Don’t try to be an expert who knows everything. Don’t speculate on the meaning of documents that other people wrote, and don’t interpret or reconstruct a document when you’re asked for your understanding of it at the time it was written.
3 Don’t be afraid to say truthfully that you don’t know or don’t recall- -and don’t let opposing counsel make you feel bad about it. If documents could refresh your memory, say so.
4 Keep answers short and directly responsive. Answer only the question asked.
5 Formulate your answer first and go slowly. It is the written transcript that counts.
6 Don’t be unequivocal unless you’re really sure.
7 Don’t explain your thought processes or reconstruct what you “would have done.” Give only your actual recollection.
8 Be prepared for questions on your prep sessions. There is nothing wrong with “preparing” to testify; you’re supposed to prepare with your attorney. Potential lines of questioning include whom you spoke to, what you looked at that refreshed your memory, and what sample questions you were given.
9 No jokes. They don’t look funny in the transcript later, and will probably come back to haunt you.
10 Don’t argue with opposing counsel, or let opposing counsel bait you.
11 Ignore opposing counsel’s accusatory tone or repetitious questions. They signify nothing of substance.
12 Expect to see new documents or other “surprises.” These are inevitable and simply part of the drill.
13 Be firm but polite.
14 Stay calm. Don’t get rattled when you hit a rough spot.
15 It’s natural to be nervous. Opposing counsel will be, too. –M.C.
Source: Litigating Complex Cases: From the Inside Out (Glasser LegalWorks, Little Falls, N.J., 1997)
HOW TO GIVE A DEPOSITION
———————————————————————— ————- CFOs are more likely to be called on to give testimony at depositions than at trials, simply because many cases are settled before they ever go to court. While the same considerations apply for videotaped depositions as for trials, nonvideotaped depositions present opportunities and pitfalls of their own, says Richard A. Rothman, litigation partner at New York law firm Weil Gotshal & Manges LLP.
The most important thing to remember is that for most purposes, it is the written transcript, not your demeanor and method of delivering testimony, that counts, Rothman notes. It is generally not important if you take some time before giving an answer, which is all the more reason to think carefully and formulate your answer well before answering questions.
On the other hand, the informal setting may encourage a CFO to try to dominate the opposing lawyer. But Rothman warns that unless that is done nicely and carefully, the transcript may not serve you well when it is played to a judge or jury later. –M.C.