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High Litigation Risk At FTSE 100 companiestest

ZyLAB : 02 September, 2010  (Technical Article)
A risk analysis survey of Britain's top quoted companies in the FTSE 100 share index demonstrates the vast majority are operating in areas of high risk of litigation including travel, pharmaceuticals and the energy industry
88% of the FTSE 100 are at risk of litigation due to their susceptibility to a number of risk factors, including a history of litigation, operating in litigation-heavy areas, and being directly consumer-facing, according to research by ZyLAB, a provider of e-discovery and information management solutions, with almost a quarter (24%) found to be 'high risk' across industries including energy, travel and pharmaceutical.

The research assessed each FTSE 100 company's vulnerability to ten key risk factors[1], a mix of industry and company-specific considerations previously known to heighten the chance of litigation, and then each company was given a score out of ten. Key drivers for assessing this risk and preparing effectively include the ability to prevent legal and accounting fees which have cost companies like Siemens £850m[2] in a bid to determine whether it had violated anti-corruption regulations.

Other key findings from the research include:

Energy is a Risky Business - Energy companies in the FTSE 100 scored the highest risk rating, averaging 7.75 out of 10, closely followed by travel (7.5) and pharmaceutical companies (7.5), partly driven by the heightened risk of providing consumer services and products and operating in an environmentally sensitive area, which was only recently demonstrated by BP being sued £3bn for the Gulf of Mexico oil spill. Finance companies also scored highly (7), which could be down to increased market volatility and heavy regulation, following the recent banking crisis.

FTSE 100 'Litigation Happy' - Almost two thirds (62%) of the FTSE 100 have previously been sued or initiated legal action, highlighting the increasingly litigious nature of our society, and with 65% of the FTSE 100 having US offices and 88% global operations, this inclination to sue could get worse in line with the highly litigious nature of the US and complexities of international legal requirements.

Complex Channels Cause Confusion - 92% of the FTSE 100 were found to have disparate information channels across the business e.g. twitter, email and paper, and with the growing use of non-searchable multimedia platforms like YouTube and technologies which move data outside the organisation, such as cloud computing, organisations could be storing up a huge problem if requested to provide information to meet legal requirements.

Ronald Van Vuure, Director, ZyLAB comments: "It is shocking to see that so many FTSE 100 companies are vulnerable to litigation. As these companies feel the ongoing impact of the recession, the last thing they need is to be faced with a lawsuit which they are ill prepared to handle.

Additional findings include:

Share Price Headaches - Almost a quarter (21%) of FTSE 100 companies have a lower share price today than they did a year ago, indicating increased pressure from shareholders to improve the financial position of the company. In line with Fulbright's 2009 Litigation Trends Report which revealed that "repercussions from the economic downturn are chief among the reasons for expecting more litigation", increased financial pressure could imply these FTSE 100 companies are more inclined to take out legal action for cases that otherwise might be more easily resolved.

Low Risk Lucky Few - Only 12% of FTSE 100 companies were judged to be 'low risk', with real estate and retail companies amongst the lucky few. With international budget cuts affecting revenue opportunities and diminishing consumer spending power, these organisations could however find themselves rapidly moving into higher risk categories.

Ronald Vann Vuure concludes: "Improving investigative capabilities to effectively source information across an enterprise will ensure it is protected against costly reactions to discovery requests within court-imposed timelines, potentially saving millions on legal fees. In today's global business environment, poor information management practices are simply inexcusable."
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