Does A Lurking Liability Worry Keep You Up At Night? Data Organization And Analytics May Be The Medicine You Need

For twenty years I served as the general counsel of a global company. NYSE traded. Eight thousand employees in 30 countries. Dangerous manufacturing processes. Our products and components were used in everything from wall coverings to transmission fluids; flooring to electrical cable; cosmetics to over-the-counter drugs.

I know a little about things that keep you up at night.

When will that next train derailment put us into the news and a dozen courthouses? What if that contract manufacturer fails again to follow FDA required quality control practices, triggering another recall? And other worries.

Now, as an advisor to companies on risk management, insurance content, and insurance dispute resolution, I’ve come to learn something I wish I had better understood when it was my job to worry.

It’s this: When you get a true grip on the data and information relevant to and influencing existing or nascent complex liability problems, you can understand and analyze it. You can realistically assess its scope and importance. You can know what to be concerned about, and what not to be so concerned about. Knowledge, secured through organized and digitized data, is more than power and might. It’s a good night’s sleep.

Let’s take an example

Your company uses Substance X in much of its manufacturing processes, and has been since the 1960s. Concerns about the toxicity of this substance were, at best, vague and unsubstantiated until the 1990s. But now it is clear that a small, but perceptible, percentage of persons exposed on a regular basis to this substance can be expected to develop a serious disease. So far, the liability problem has been manageable. A few suits were filed; a few settlements have been made. But what does the future hold?

This hypothetical company, whether it appreciates it or not, possesses historical information that, properly organized and interrelated, can provide it with realistic—and ongoing—analytic reports that will greatly clarify the true—from the imagined—potential risk it faces as an enterprise.

The usual approach and its shortcomings

Wise business leaders know that hope is not a strategy. When it comes to brewing liability problems, “wait and see” is not a strategy either. But far too many companies adopt it, because their professional advisors—usually a trusted law firm—really has no other strategy to offer. Litigators are good at litigating. When accurate information is available to them, they can assimilate, synthesize, and present it to fashion effective defenses. But litigators are neither forensic or technology experts. They need accurate information to do their job well, but they do not have the skill sets required to find, organize, analyze, and digitize that information in a relational database so that it can be used by them to most effectively protect the company. This is true even when “national coordinating counsel” has been engaged, and perhaps utilized for years.

So what usually happens? Matters are examined individually, usually by starting with cases that look particularly ominous. Cartons of miscellaneous records are plowed through by staff attorneys and coded for reference. But it is not realistic or economical to take a holistic approach this way. Most importantly, errors and unfounded presumptions will often be made. Many records will never be reviewed that should be, and many that are studied will be misinterpreted to mean things—good or bad—that are unwarranted when examined in the context of all of the data and the projections and modeling that can be performed on the basis of the entire picture.

It can be done much better, with real benefits

There is a much better way. A specialized resource with deep skills and experience with technology to capture miscellaneous complex data and build it into a relational database can work with your legal counsel. I call these specialists “liability data masters”, but the moniker is not important. The best of them combine strong accounting backgrounds with technology savvy and deep programming skills. These attributes allow them to analyze and report out the information from unlimited perspectives—geographically, demographically, sensibly. Whether you appreciate it or not, if you are a company with substantial legacy or ongoing liabilities, you are already paying somebody for an attempt to capture and use your information. You may be very surprised at what it will cost you to do it right, instead of the way it is being done for you now. And you will probably find that the benefits of your new ability to accurately forecast and understand trends—and report them competently to senior management to formulate moderate and long-term strategies, far outweigh any incremental increase in outside expense.

It’s not only about big liability exposures—the small stuff counts too

Even if your company does not face obviously serious exposures in the nature of mass torts, you can achieve important benefits and reduced long-term expense by expertly digitizing and understanding your information for more routine exposures. For example, if you have ongoing voluminous employment law matters because you have a large employee base, or unavoidably high numbers of parking lot liabilities, you will find that these expert resources can help you identify and address trends and much more accurately track and forecast future financial implications.

What is the value in knowing—and being able to prove through competently organized and reported data—that if future store locations are managed wherever possible by persons over the age of 50, employment law expense will be reduced by 50% for those locations? Or that, based on ten years of history and incident reports, parking spaces that are 12 inches wider result in 60% fewer injuries to customers and visitors in your locations?

It may just be a good night’s sleep. But it will also improve your bottom line.

Joseph W. Bauer is the principal of Bauer Advising LLC. For 20 years he was the chief legal officer of The Lubrizol Corporation, prior to its acquisition by Warren Buffett’s Berkshire Hathaway, Inc. in 2011. Now his firm advises companies on matters of risk and insurance management, and which facilitates the resolution of insurance coverage disputes. The firm also assists companies match outside resources to corporate needs in the effective management of risk and liability.