We’ve often heard expert witnesses give the advice that you should present information in court in a simple straightforward manner such that a child can understand it. A case we reported on in a prior issue of BVWire is an example of this. One key issue in the valuation was reasonable compensation, and it seemed clear that the expert (who was court-appointed) had done this analysis. Yet, the appellate court wagged its finger at the expert for not doing the analysis and told him to do it in the next go-round. The court remanded the case back to a circuit court for a new valuation.
Head-scratcher: In his valuation report for the lower court, the expert, Mark A. Hanson (Schenck SC), had written: "Based on our own analysis, we have concluded that the historical officer’s compensation is within industry ratios. We also note that an executive compensation expert … concluded that executive compensation was not excessive.” This seems very clear that Hanson did the analysis. But the appellate court says it’s not clear and that this wording only “suggests Hanson may have performed an independent analysis.” (emphasis added)
The court also noted that the valuation report did not include enough detail about the analysis, so it could not conclude that any analysis was done at all. We point out, however, that the lower court had instructed Hanson to assume that compensation was reasonable, so he didn’t have to address it in the first place. If this all sounds like a bad dream, it’s not—it happens in the surreal world of the court. The trouble is, these things can cause additional work even when an expert does his or her best to follow the court’s instructions.
What to do: Pretend you’re telling a child a bedtime story and make it absolutely clear what you’re saying. Use simple direct language and go one step at a time. For example, you could write: “We conducted an independent analysis and determination of the reasonableness of compensation.… We compared the compensation to industry ratios…. Our analysis is on page X, and our data are included in Appendix Y.… We also reviewed the analysis of an executive compensation expert…. We concluded that compensation was reasonable and not excessive.” And so on. Of course, the judge may still be confused, but there’s only so much you can do.
There are more lessons to learn from this case, and we’ll present them in an article in a future issue of Business Valuation Update. The case is Swiderski Equip. v. Swiderski, 2017 Wisc. App. LEXIS 91 (Feb. 14, 2017). A digest of the decision and the court’s opinion are available at BVLaw.
Please let us know
if you have any comments about this article or enhancements you would like to see.