Viewpoint: Clients Can't Win if No One Keeps Score

Michael D'Andrea

2013-02-08 11:06:08 AM

In 1934, in response to the wild market fluctuations of the Depression era, members of Congress came to the conclusion that companies that publicly traded their shares would be required to disclose data regarding their past performance on a yearly basis. The idea was simple: Individuals who purchased and sold securities required available data in order make sound decisions about the health of the companies in which they were investing. This idea was codified in a series of regulatory statues that culminated with the Securities and Exchange Act of 1934. Notably, the 1934 act also created the Securities and Exchange Commission. This regulatory body was designed, in part, to enforce the disclosure requirements newly created by Congress.

The notion that relevant financial data was necessary in order to evaluate a companies' performance was not exactly groundbreaking in 1934. For example, in 1602, the newly formed Dutch East India Co. announced that it would publish its profit and loss statements through a disclosure to anyone willing to buy one of its shares. The company, formed by the Dutch government to maintain ties with lucrative Asian trading outposts, was one of the first to disclose financial data to its shareholders.

Thus, at the very least, 400 years ago, the importance of disclosing data regarding past performance in order to assess relative financial strength and weakness was known to investors. The more data available, and the better quality of data, the more likely a better assessment of performance could be made over time. Analyzing this information has sprung up an entire industry of economists, accountants and financial advisers poring over corporate financial data every quarter in order to obtain a sense of which companies are performing well and which are not. In addition, the data is used to compare competing entities in order to assess which provides the greater potential return on an investment. At this point, the disclosure and analysis of performance-related data in this country's financial industry is ubiquitous.

With this context in mind, why are the investments made by clients in their legal representation lacking the same type of data availability? If we view the client-lawyer relationship as an investment of time, money and trust from a principal to an agent, doesn't it make common sense for past performance data to be made available to the client making the investment?

The legal industry has been remarkably slow to embrace transparency with regard to data availability. There is scant objective information available regarding settlement success rates, nonanecdotal trial advocacy activity, and verdict versus pretrial settlement offer disclosures. This type of data would allow clients to make a better, more informed decision as to the attorney they are choosing to represent them. What the financial industry has embraced for a couple of hundred years has seemed to elude the legal industry: Anecdotal evidence of success does not equate to actual success. Retaining an attorney through referral or reputation (both extremely common) may lead to a successful relationship, or not, but retaining an attorney based on objective data indicating success over time will ultimately better serve clients. This is because objective, data-based indicators offer a more transparent analysis of an attorneys' ability as opposed to anecdotal information.

This point is not new, groundbreaking or controversial. The Dutch East India Co. realized as much more than 400 years ago. Professional sports teams have been using available performance data to evaluate players virtually since their inception (albeit with more regularity in recent years). It is clear then that the legal services industry is lagging far behind with regard to the availability and analysis of this type of data to the benefit of clients. History has shown us that relying on subjective evidence is vastly inferior when compared to more objective forms of evidence in order to estimate the probability of success. Hopefully, one day, we can start keeping proper score.

Michael D'Andrea is currently an associate in the Los Angeles office of Bremer Whyte Brown & O'Meara, practicing in the areas of complex civil litigation, business litigation and products liability. He can be reached at mdandrea@bremerwhyte.com.

The Recorder welcomes submissions to Viewpoint. Contact Vitaly Gashpar at vgashpar@alm.com.