Litigation exposure differences, perhaps, between public and private companies

The implication from a recent survey is that private companies face less litigation exposure than public companies. That may be true, the analysis ignores a significant third factor, size. The Fulbright & Jaworski 2008 Litigation Trends Survey writes that “privately held companies saw fewer new suits, but were hardly immune to getting sued: 66% had to defend at least one new action in the past year, with 14% dealing with more than 20 fresh lawsuits. In comparison, 83% of public companies defended one or more new suits this year, with one-third of them facing 20-plus new cases.”

The F&J analysts need to stratify their results by size of company. If the private companies in their population of around 350 tend toward being smaller than the public companies, then litigation per billion dollars of revenue is the more insightful perspective (See my post of Dec. 23, 2008: normalize litigation data by revenue.). Only if similarly sized companies, public and private, show different litigation profiles, is it plausible to speculate that there is a greater exposure to lawsuits when your shares are publicly traded.

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