Sir,
John Plender's article about Lerach Coughlin's suit against BP ('America's litigation habit threatens to spread', October 20) touches on a point worthy of fuller exploration - that is, the economic illiteracy of the lawsuit, and the inevitability that the outcome, were it to be successful, would significantly damage those very shareholders for whom the suit purports to seek compensation.
The suit seeks damages for shareholders from the very company they own - in other words, it purports to say that shareholders desire to sue themselves. (The suit is of course a derivative one, which means the claim is ostensibly against the directors not the company. But it ends up as the same thing, because the company pays the directors' and officers' insurance premiums.)
Let us hypothesise that the suit is successful and extracts, say, $1bn in damages from BP. A component of this $1bn, say $Xm, would end up in the pockets of lawyers (an outcome that is, of course, from the common spectator's point of view, the suit's more likely apparent true purpose).
Once the $1bn payout has been made, insurance premiums will rise significantly for D&O round the world, at least for all companies with operations in the US. The insurance companies do not plan to be out of pocket, so they just raise their premiums to recover this money.
Who pays for this additional $1bn in premiums? It is the companies owned by the very shareholders who are supposed to be benefiting from this suit (the majority of shares in companies of this sort are owned by the large institutions and funds that are also the majority shareholders of BP).
The shareholders, in this case, do get the monies remaining from the award after the law firm has taken its share of $Xm. But the additional premiums have cost their companies $1bn, and the overall value of those companies should decline by that amount.
So the shareholders end up $Xm worse off than if the lawsuit (which in this scenario they had allegedly 'won') had not been prosecuted in the first place. Lerach Coughlin is, of course, better off by that same $Xm.
If this is the case, one wonders why these majority shareholders are not suing Lerach Coughlin, which is claiming to represent their interests, to cease and desist - and whether BP has explored its chances of seeking a summary dismissal of the case since the suit is not in the shareholders' interests, and should be abandoned forthwith.
If the US legal system is not totally lunatic, surely a cogent explanation of this point, whether to a judge or jury, must stand a chance of success.
Jon Moynihan
Chairman
PA Consulting Group
London SW1W 9SR
