Class Action: CIBC/Chamber Weekly CEO/Business Leader Poll by COMPAS in the Financial Post for Publication May 6, 2002

Transcription

1 Class Action: CIBC/Chamber Weekly CEO/Business Leader Poll by COMPAS in the Financial Post for Publication May 6, 2002 COMPAS Inc. Public Opinion and Customer Research

2 Introduction An overwhelming majority of business leaders believe that directors and corporations are faced with an increasing threat of litigation. Worse still, few business leaders agree that class action suits are constructive even though most believe that the threat of class action lawsuits puts the financial statements and behaviour of companies under the microscope. Given that few business leaders view class action suits as constructive, it is not surprising that few are in favour of laws to facilitate such lawsuits against corporations. On the other hand, a bare majority of business leaders feel that Canadian laws should make it easier for taxpayers to launch class action suits against government These are key findings from this week s National Post/COMPAS survey sponsored by the Canadian Chamber of Commerce and CIBC Small Business. The Verdict -- Lawsuits Guilty of Becoming an Increasing Threat By immense margins, business leaders believe that directors and corporations are faced with an increasing threat of litigation. As shown in table 1, 71% say that class action suits against corporations are becoming an increasing threat, scoring 5-7 on the 7-point scale. Only 6% say that such lawsuits are becoming a decreasing threat, scoring 1-3. Thus, business leaders are over ten times as likely to see class action lawsuits against corporations as an increasing threat rather than a decreasing one. Business leaders are nine times as likely to see suits against directors of corporations as an increasing threat (62%) rather than a decreasing menace (7%). Table 1: Do you sense that either of the following two types of lawsuits are becoming an increasing threat? Please score each with a 7-point scale where 7 means an increasing threat, 4 no change, and 1, a decreasing threat. [ROTATE] Class action suits against corporations Suits against directors of corporations Mean DNK The following are some of the volunteered responses on the threat of lawsuits: 1

3 Today, regardless of the issue, the first thing people do...is sue! The ease with which individuals can launch lawsuits is a serious problem and will ultimately destroy competition because only the biggest companies that can afford their own law firms will be able to survive. The Sentence --Threat of Lawsuits Leads to Increased Scrutiny not Honesty Most business leaders believe that the threat of class action lawsuits puts the financial statements and behaviour of companies under the microscope. Meanwhile, business leaders are ambivalent about whether class action suits are constructive. In practice, 75% of business leaders surveyed agree (i.e. score a 7, 6, or 5) that the threat of class action suits is making individuals look more carefully at the financial statements and behaviours of companies, as shown in table 2. By comparison, only 36% of business leaders agree that class action suits are constructive because they keep businesses honest. The following are some of the volunteered responses from the business leaders who do see class action suits as constructive: Corporations and governments have certainly lost a lot of credibility in the last two years. But it is only right for ordinary citizens to be able to corporations and governments accountable for their actions or inactions. The public perception is that companies and governments are not accountable much of the time, which, is often proven at a later date in court. On balance, this is simply a positive for ethical companies that stand behind their products/services. Governments can be replaced by a vote of the public. Difficult to do in a corporation. Making it easier to sue companies will ensure that Directors and Management take better care of reporting accurately the affairs of the organization. The following are some of the responses from the business leaders who do not see class action suits as constructive: Working as I do for a U.S. based multinational, I can attest that tortbased product liability based on flimsy science and even flimsier allegations of damage, and to a lesser extent shareholder class action based on stock market losses, is a bane that discourages innovation and innovative business strategies; in the U.S. it is an undisguised wealth redistribution scheme, and this is one unwanted American export we do not need in Canada. Many class action suits are settled out of court because businesses cannot afford the legal costs, the diversion of effort from the business 2

4 and the public relations damage. Therefore there is no legal decision about the merits of the suit. This will encourage lawyers and shareholders/customers to abuse the system. Some business leaders volunteer that lawyers are the only parties to benefit from lawsuits: Class action suites are nothing but a new scheme for scumbag lawyers to get more money in their pockets! Judging from U.S. experience the big winner in class actions appears to be the legal profession. The consumer has gotten very little once the dust settles. The contingency fee based "predatory" law firms in the U.S. raise the cost of doing business with little additional benefit to consumers. Class action litigation is a counterproductive bonanza for lawyers. Clear majorities of business leaders agree that the threat of class action lawsuits from consumers is an increasing concern of executives in consumer oriented firms (68%) and that the threat of class action suits from shareholders is an increasing concern of executives in publicly traded companies (68%). Few business leaders agree (23%) that lawsuits are merely a nuisance and an added cost of business. Table 2: Using a 7-point scale where 7 means agree and 1, disagree, how do you feel about the following opinions about class action suits? [ROTATE] The threat of class action suits is making individuals look more carefully at the financial statements and behaviour of companies offering them directorships The threat of class action suits from consumers is an increasing concern of executives in consumeroriented firms The threat of class action suits from Mean DNK

5 shareholders is an increasing concern of executives in publicly traded companies They re constructive because they keep businesses honest They re merely a nuisance and an added cost of business Prevention--Few Support Laws Facilitating Suits Against Corporations, Bare Majority Support Laws Facilitating Lawsuits Against Government Given that few business leaders view class action suits as constructive, one might expect business leaders to oppose laws in favour of facilitating such lawsuits. Indeed, such is the case as far as lawsuits against corporations are concerned. On the other hand, a bare majority of business leaders feel that Canadian laws should make it easier for taxpayers to launch class action suits against government. In practice, one-third of respondents feel that Canadian laws should make it a lot or somewhat easier for shareholders or customers to launch class action suits against companies for the welfare and effective functioning of business, as shown in table 3. One respondent volunteered the following: Improved governance by Board of Directors is an important issue that needs to be addressed through improved transparency of financial accounts and audits, not through court action. Class action is a blunt and destructive approach to governance and we should make it as difficult as necessary to prevent abuse. Table 3: For the welfare and effective functioning of business, do you feel that Canadian laws should make it [INSERT CATEGORIES] for shareholders or customers to launch class action suits against companies % A lot easier 6 Somewhat easier 29 Somewhat harder 42 A lot harder 7 4

6 DNK/Refused 17 By comparison, over half (54%) of respondents feel that Canadian laws should make it a lot or somewhat easier for taxpayers to launch class action suits against governments, as shown in table 4. One respondent opined: We are told we have a voice and it is heard; however when it comes right down to it, we are ignored. We are the taxpayers and we should be listened to. Table 4: How about class action suits against governments? Do you feel that Canadian laws should make it [INSERT CATEGORIES] for taxpayers to launch class action suits against governments % A lot easier 18 Somewhat easier 36 Somewhat harder 22 A lot harder 12 DNK/Refused 11 One respondent opposed to making it easier for taxpayers to sue government offered the following: Instead of legal action against governments it should be easier for the public to remove the politicians when they do not live up to their responsibilities. Methodology The National Post/COMPAS web-survey of CEOs and leaders of small, medium, and large corporations and among executives of the local and national Chambers of Commerce was conducted April 30 to May 2, Because medium and small companies are more numerous in the economy and hence among Chamber membership, actual respondents are drawn more from these strata than from the stratum of the largest companies. Because of the small population of CEOs and business leaders from which the sample was drawn, the study can be considered more accurate than comparably sized general public studies. In studies of the general public, surveys of n=201 are deemed accurate to within approximately 7 percentage points 19 times out of 20. The principal and co-investigators on this study are Conrad Winn Ph.D. and Robert Laufer. 5