Managing Your Expert for a Successful Outcome The 10 Commandments

As every bankruptcy litigator knows, the outcome of many complex bankruptcy matters is
dependent on the analysis and testimony of the financial expert. We have been fortunate
to work with many exceedingly capable bankruptcy attorneys. While the strategies and
approaches used in managing experts frequently differ, we have observed a number of
common elements used by lawyers who maximize the effectiveness of their expert's
testimony. The following guide represents several decades worth of amassed experience.
It includes what we perceive to be the 10 Commandments of financial expert
management. Interestingly, we find these rules to be applicable across a broad range
of bankruptcy cases.

</p><h3>1. Hire Early: Do Not Succumb to the False Economy of Delay</h3>

<p>When is the best time to hire a financial expert in a bankruptcy case? Over and
over, we have come to realize that the answer is early in the case; in particular,
early in the discovery process. An expert's analysis is only as effective as the
information that he/she has. The expert should work closely with the attorney on
compiling the document request. The experienced expert will know where to search for
information necessary to build a concise case. For example, a scientist's speech can
provide clues about a firm's target market; unsuccessful loan applications can provide
information relevant to the debtor's anticipated market size, and board minutes can
illustrate dissension within the debtor's board. An experienced expert will typically
have a list of potentially useful documents in order to obtain differing types of
information. By hiring an expert early on in the case, the expert can obtain and
make use of information that otherwise might be unavailable.

</p><h3>2. Do Not Fall for the Back of the Envelope</h3>

<p>We cannot tell you how often we have been asked to do a back-of-the-envelope
solvency analysis or damages estimation. On occasion, an attorney might ask us to do
a "quick and dirty" analysis of a topic that ordinarily might take several months to
complete. While in theory the approach has merit, we find that virtually each time
we move down the path of "quick and dirty," we cover the same ground again with a
more detailed analysis at a future point in time. Rather than saving money,
significant duplication of funds are now allocated to properly analyze the issues. The
quick-and-dirty approach can easily miss key factors such as contingent liabilities,
untapped credit lines or hidden assets. The quick-and-dirty can sometimes be downright
misleading and result in burdensome, additionally incurred work.

</p><h3>3. Hire a Communicator</h3>

<p>A good expert can communicate with a judge or jury. While this sounds simple enough,
it is not uncommon to find and hire a technically proficient but ineffective finance
expert. We have frequently encountered accountants who speak debits and credits,
finance professors who sound like they are teaching a doctoral seminar in stochastic
processes, and actuaries who sound like mathematicians. The ability to communicate is
vital. Making the complex understandable to a judge or jury is often an integral part
of the expert's job. Yet frequently, the attorney seeks to hire a knowledgeable
expert, ignoring the key communication skills of the potential expert. If the expert
is a financial practitioner, what experience does the expert have communicating to a
non-sophisticated audience? If the expert is a professor, what are his/her teacher
ratings? Success in the classroom is often a key indicator of the expert's likely
courtroom effectiveness. The courtroom, like the classroom, requires the effective
dissemination of complex information.

</p><h3>4. Does the Expert's Game Plan Fit With Yours?</h3>

<p>As you are interviewing experts, find out how they would attack the problem at
hand. Remember, the expert's credibility becomes of utmost importance. Does the
expert's background give him/her sufficient credibility to analyze the matter at hand?
Does the expert plan to keep it simple? It is not unusual to find an expert who
solves the problem with all the artillery available as opposed to the simplest tool
to do the job. Consider, for example, a scholarly professor who wants to use a
complex stochastic algorithm rather than a simple iteration of an Excel spreadsheet.
Make sure the expert plans to address the issues for which you require testimony, not
the interesting but irrelevant problem relating to his/her research agenda.

</p><h3>5. Do Not Hire Two Experts Where One Will Suffice</h3>

<p>We recently testified in the case of a bankrupt company where valuation at the time
of a transaction was paramount. We testified using traditional discounted cash flows and
appropriate multiples. Our adversaries used several experts. One of them used a
little-known and infrequently used concept of harmonic mean. It results in a mean
value consistently lower than the ordinary average of a set of numbers. In other
words, if you were calculating the harmonic mean of the numbers three and five, you
would get a number less than four. The expert using the harmonic mean touted its
importance in finance and well-known applicability. A second expert testifying on
related subject matter, disclosed he had never heard of the harmonic mean and was not
familiar with any applications of this supposedly important tool. The message is that
two or more experts testifying on related material can easily and inadvertently contradict
each other's testimony. However, we often find that an industry expert, in addition
to a finance expert, can add a valuable industry knowledge in particular situations.
Similarly, multiple experts sometimes provide a more complete analysis in certain
situations where both liability and damages are at issue.

</p><h3>6. Where Possible, Avoid the Single-bullet Expert</h3>

<p>Many areas of testimony in bankruptcy are amenable to several types of analysis.
To the extent that the expert can bolster his/her analysis by using several alternative
methodologies, the power of testimony is increased. For example, discounted cash flows
may be an entirely appropriate method of determining value. However, if a similar
value can be obtained using other approaches (<i>e.g.,</i> comparable companies or
comparable acquisitions), the financial foundation of the testimony is bolstered. Should
the adversarial party determine weaknesses in one of the methodologies, the other
methodologies still support the expert's valuation.

</p><h3>7. Do Not Let the Expert's Prior Testimony Be Your Waterloo</h3>

<p>Attorneys virtually always ask whether there is any contradictory prior testimony on
the record. Most of the time, they ask after the expert is already engaged and
preparing for deposition or trial. At that time, it is usually too late to remedy
the potential damage. Consider this recent case: The expert was hired to value a
company at some point prior to a bankruptcy. The attorney was attempting to prove the
company was solvent. A key variable integral to the analysis was the marketability
discount assumed by the expert. To make the company solvent required an unusually small
discount. The expert's report produced a solvent company justified by the unusually small
marketability discount. However, on numerous other occasions, the expert testified in
cases where it was advantageous for his position to have a large marketability discount.
A careful reading of his prior testimonies revealed significant contradictions and
discrepancies. The engagement process, not the preparation for testimony, is the time
to learn about the expert's paper trail.

</p><h3>8. Avoid Surprises: Meet Frequently With Your Expert</h3>

<p>You do not want to control or put words into your expert's mouth, but you do
want to manage him/her. You should know what your expert is planning to analyze as
well as the results of any analyses to date. Such careful monitoring ensures that the
attorney is kept appraised of the expert's work and can correct any misunderstandings
or misinformation the expert may have. It is important that the final work product
and conclusions be those of the expert, but it is also important that the attorney
and expert having a working relationship throughout the preparation of the expert's
report.

</p><h3>9. Provide Information to Your Expert Promptly</h3>

<p>Often when a case begins, we will request a broad range of documents from the
attorneys. Generally we are provided information as promptly as it is available.
However, delayed remittance of information occurs with enough frequency to be mentioned
here. Remember that the expert is limited in his/her analysis by the information
available. If the expert is trying to develop conclusions based on incomplete data,
it is costly both to the client and potentially to the quality of the work. In some
cases, we see a decidedly uneven flow of information. The closer to the report date,
the more information we receive. (We are not talking about documents produced late,
but documents that were available early on.) We notice the same phenomenon as we
approach a deposition or trial date. During the week before the trial, it is not
uncommon to find ourselves deluged with thousands of pages of documents and deposition
testimony. This uneven flow of information to the expert sometimes makes it nearly
impossible to give proper attention to the documents received just prior to a report
or testimony. Clearly, early remittance of key documents will enable your expert to
be better prepared as well as deliver a more complete report and well thought-out and
conceived deposition and trial testimony.

</p><h3>10. Get Your Expert Paid Promptly</h3>

<p>Experts, like attorneys, like to be paid promptly. There are several reasons why
it is beneficial for your case that your expert is paid with reasonable promptness.
You do not want your expert to be spending more of his/her time worrying about
payment than worrying about the matter at hand and delivering the most appropriate and
effective report and testimony. After many years of practice, we have also concluded
that one of the best ways to avoid the charge that the payment to the expert is
contingent is to make certain that all fees and expenses are current at the time of
both the deposition and trial.

</p><hr>
<h3>Footnotes</h3>

<p>^{<small><a name="1">1</a></small>} The authors are professors at Boston University's School of Management and Managing Directors of The Michel/Shaked Group. <a href="#1a">Return to article</a>