The risk of class actions is one that all CEOs must be mindful of. Consumers who have had issues are increasingly deciding to sue, with many of them deciding to do so as a group.
A class-action lawsuit can be incredibly damaging to any business. They are not called the “nuclear option of consumer advocacy” for nothing.
Long and complicated litigation
There are a lot of hurdles for the plaintiffs to overcome. These actions involve a huge amount of evidence, which complicates matters. They are extremely time-consuming to prepare for and litigation can really dragged on.
This, of course, means that a firm’s lawyer also faces a mountain of work. This alone can be a drain on your company’s resources.
The fact that there are so many plaintiffs is another big issue. If you lose the case, the amount you have to pay out can be astronomical.
As a result, it is not uncommon for companies to settle class actions out of court. This can happen even when they genuinely believe that there is no case to answer. Some CEOs and their legal teams feel that they just cannot afford to take the risk of losing the case. Of course, this approach is in itself expensive.
The plaintiffs and their lawyers believe that there is a case to answer for, so they expect the payout to reflect the damage they are claiming for. As a result, most of the time, they are not prepared to settle for a small payout.
The risk of further claims being bought
When people become aware that your firm is being sued the risk of others doing so is considerably heightened. People suddenly start thinking about their experience of your firm and decide that they too have suffered from the actions of your company. This can lead to having to deal with even more plaintiffs. In addition, other, un-related cases can be opened against a company. This leaves firms fighting litigation on several fronts.
Damage to your brand and company’s reputation
Regardless of whether the class action succeeds or not, a company can easily end up with your brand and reputation being badly affected. Of course, you can rebuild and solve this issue. But, it is a gradual process. Usually, in the meantime, your bottom line will be severely impacted. Unfortunately, this can happen regardless of whether you win or lose the class action.
There is little doubt that CEOs need to take the danger of class actions very seriously. At this time, this type of litigation can touch any firm.
The best defense against class actions
By far the best defense is to avoid this kind of legal battles in the first place. That means putting in place robust ways to deal with issues raised by your customers and consumers. You also need to test your products and processes carefully. Document everything fully and above all else actually deal with the issue head–on.
Class action trends
If you want to read more about class action trends, you can do so by clicking here. That article will give you more of an insight into why they are brought to court and the kind of damage they can do to an organizations reputation and finances.
This is a guest contribution by Charles Dearing