There is a common perception that financial expert witnesses are biased in favor of their clients’ financial interests. In truth, credentialed professionals must adhere to various ethical standards that require them to be independent and objective when serving as an expert witness in a litigation matter.
However, there are times when experts aren’t provided with all of the relevant information, or may only hear their client’s interpretation of financial results, which could skew their conclusions. When this happens, the parties’ experts are likely to reach widely divergent conclusions that often must be settled in court.
Maybe it would be more effective if the parties could openly share information, and expert witness fees? When disputing parties can set aside their differences and stipulate to certain key facts at the onset of their discussions, conditions could be right for the use of a joint expert. In some cases, a judge may even require that the parties retain one expert.
Some benefits of using a joint expert include lower costs, shorter resolution times and enhanced believability. The parties split the fee for one expert, and the company’s operations are only observed and interrupted by one set of inquiring eyes, instead of two. Additionally, because judges and juries perceive jointly-retained experts to be less biased than experts that are hired by one side, they are often more persuasive as well.
There are times when a joint appraiser can even rebuild trust between injured parties, which can greatly benefit any planned future interactions. For example, estranged spouses may need to co-parent children after settling their divorce. Or siblings may need to care for elderly parents after the family business files for bankruptcy. The use of a joint appraiser may be a small step toward future collaboration.
Detailed, Upfront Stipulations
Effective joint expert projects start with a detailed engagement letter that stipulates certain key facts from the get-go. For instance, when valuing a business interest for divorce, the parties might prescribe specific valuation discounts for lack of control and marketability, or identify adjustments the expert should make for discretionary spending, nonoperating assets, and contingent assets and liabilities.
Experienced financial experts know the customary points of contention for a particular type of case, be it a shareholder dispute, divorce or buyout , and can help the parties work through these problem areas in advance.
Both sides should agree on the scope of engagement and reporting format, which the expense of hiring the joint expert is often shared. For example, will the expert use management’s financial statement forecast, or will the expert create an independent forecast? Does a valuation assignment include forensic accounting procedures to verify account balances? And should the expert’s conclusion be reported orally or in a formal written report?
A joint expert’s engagement letter also typically contains a provision that requires the controlling shareholder to give the expert unlimited access to the company’s financial records and answer all of the expert’s questions.
Resistance to Joint Experts
However, joint experts aren’t for everyone. For instance, they’re less common in cases that involve litigants of disparate size and access to information, such as patent infringement claims. Large companies with deep pockets may be less cost sensitive and, therefore, less inclined to agree to use a joint expert.
Also, if the involved parties can’t overcome their animosity and distrust, a joint expert tends to be less effective. When embittered litigants attempt to use a joint expert, there’s a chance that one party might question the expert’s conclusion, especially minority shareholders who might resent the expert for spending more time with the controlling shareholder.
Moreover, if a case is likely to wind up in court, the attorneys may decide to hire separate experts whose communications are protected under client-attorney privilege. All of the parties’ communications with a joint expert are generally discoverable.
A Worthwhile Consideration
The next time you’re seeking a financial expert, like Filler & Associates, consider using a joint expert to save time and money, especially if the parties involved can realistically set aside their differences and work together towards a fair, objective conclusion.