-- Lawsuits are not going away. Lloyd's of London, which sells specialty insurance to businesses in 200 countries and territories, recently released a global survey of executives who say that the rest of the world is starting to catch up to the USA in lawsuits, and they say that is driving up costs and stifling risk-taking. What are companies to do? Lloyd's CEO Richard Ward, 51, spoke from London with USA TODAY management reporter Del Jones. Following are excerpts, edited for clarity and space.
Q: Is the USA no longer the most litigious country in the world?
A: The evidence suggests that litigation costs are the highest in the U.S., but unfortunately other regions seem to be catching up. One survey found that the U.S. tort system costs each U.S.. citizen $625 a year. That has certainly made products more expensive. States with the highest tort costs experience the lowest standard of living. Our survey showed that 42% of executives consider it a major disincentive when looking to do business in your country.
Q: What one type of lawsuit poses the biggest threat?
A: There is a range. Technology risk involving technology security, nanotechnology issues. Environmental risk involves climate change and pollution. And, of course, corporate governance, especially involving communication with shareholders, disclosure and transparency.
Q: Really? Companies should brace themselves over global warming lawsuits?
A: There is a growing risk that companies will be held liable for pollution and environmental damage. Companies have to behave responsibly and think about the consequence of actions and activities.
Q: What about all those smaller lawsuits? Do they add up, or do companies need to worry most about the one, big, back-breaking lawsuit?
A: That's difficult to say because small lawsuits can ultimately become big ones.
Seven out of 10 companies have faced litigation in the past three years. There are many areas to consider, but for a starter, we suggest the three areas: technology, environment and corporate governance.
Q: What steps can a company take to reduce the risk of litigation?
A: First and foremost, monitor the risk environment in a structured way. Look at legal activity elsewhere and see how that might impact you. Seek advice from government authorities, specialists and risk-management consultants. There is a lack of awareness among employees about why their companies get sued. It's not just the board's responsibility. It must be spread throughout the corporation. Other priorities compete for a worker's time, so there needs to be mechanisms put in place to identify, monitor and address risks. Put in place a strong in-house legal team with clear lines of responsibility and accountability. We have seen a number of cases that have escalated into litigation because of the failure of companies to deal with customers when they register a complaint. Capture issues at the outset and deal with them, thereby avoiding an escalation of problems.
Q: You talk of corporate culture. What do you mean?
A: It's management providing leadership around attitude. We're looking for a culture that encourages the awareness of employees about liability and risks. To encourage that, the board and the senior management need to be seen to be taking an interest and encouraging full participation.
Q: There are companies that get sued significantly less than other companies in the same industry. What do they do differently?
A: Certain sectors are clearly more at risk than others, such as pharmaceuticals and aerospace. The key is to take liability seriously and have the culture and infrastructure in place. Such companies focus on prevention rather than reaction and integrate liability risk management into an overall framework. If they do that, they are less likely to be subject to litigation.
Q: On the other hand, are there errors that almost guarantee a court date?
A: (Laughs) You want my little black book on mistakes you can make to get sued?
A: There is no blueprint.
Q: C'mon, there must be something companies keep doing that is really dumb.
A: Nothing springs to mind. If a company is continuously sued, they are not learning from their mistakes. Everyone needs to understand the businesses they are in and the risks they run.
Q: If pharmaceuticals and aerospace are the riskiest industries, what are the safest?
A: Sitting at home and doing absolutely nothing. But you can get sued for that, too.
Q: Is there any evidence to suggest that companies that treat their employees well are less likely to be sued?
A: I'm afraid there is nothing we have seen yet. Intuition would suggest that treating your staff fairly, decently and with respect would decrease suits. We have no evidence to report.
Q: What about employee training?
A: Staff education is absolutely key. A better understanding of the consequences of behavior lessens risk and improves the reputation of the business. Employees should be encouraged to raise concerns and share information.
Q: Companies often settle lawsuits because it's less expensive than going to court. Doesn't that encourage more lawsuits down the road?
A: I don't know if it encourages or discourages suits down the road. Every suit has to be judged on its merit. Clearly, there will be nuisance claims, and there will be legitimate suits. There is no blueprint.
Q: What aboutnuisance lawsuits? Should they be settled even if they have no merit?
A: That's a commercial decision. It's a risk assessment, isn't it? The risk of going to court and losing, the risk of settling. All cases need to be judged on their merits, so I'm afraid I can't give advice. It is a decision that business leaders face on a regular basis. Litigation is a fact of life, and it's on the increase. It depends on the reputation of the company, its brand, its position, its culture.
Q: Are there any new risks on the horizon that companies need to be looking out for?
A: People don't understand the impact of nanotechnology. How nanotechnology might affect health needs to be understood. For instance, a lot of the sunscreens are using nanotechnology particles. You put them on your body to guard against overexposure. I'm not suggesting at all that there are any long-term health implications. I just do not know. There's no track record or history of performance. If you're using nanotechnology in a steel structure, what will happen in 20 years? There is experience in hurricane zones, but with nanotechnology, there is no previous experience.