What Judges Think: Desirable Qualities of
Valuation Experts and Their Reports
Are you planning to hire a business valuation
professional? Or, if you have already made the selection, is the
hired following best practices?
Judges and their fellow panel members at two 2009
forums - the NACVA/IBA Consultants' Conference and Business Valuation Resources'
Summit on Business Valuation in Divorce - offered useful suggestions for
desirable qualities of valuation reports and expert testimony. Here are some of
Valuation reports must be
logical, rational and clear, with transparent analysis of the company, the data,
the factors supporting the conclusion, and the underlying rationale. If you
don't understand a valuation report, chances are the judge won't either, and
that makes it hard for the judge to reach a decision that will withstand review
While the role of a lawyer is
advocacy of a position, the role of the expert is roughly the same as that of
the judge: to arrive at the truth. Anything else will diminish the expert's
The report must be reliable and performed using
peer-reviewed methods, and the valuation professional must be experienced,
well-prepared and sincere. The strengths and weaknesses of the valuation report
should be self-evident, with clearly stated rationale for why areas or methods
might have been ignored or omitted for lack of data or applicability.
In addition, experts who compare the small subject
business to a Fortune 500 company or omit an exceedingly obvious item (even to a
lawyer or judge) from a valuation are doomed to lose credibility. The same goes
for an expert to gets on the stand and essentially says, "I know everything."
Experience and Credentials
credentials build credibility, and so does the expert's knowledge and experience
in the area that is pertinent to the case. In court, an expert's credibility is
based on the quality of his work, his transparency, and his objectivity. To be on the safe side, experts should always
disclose to the lawyer anything in their past that might discredit their opinion
- a rejected report, findings of incredibility by a certain judge, etc. - so
that the attorney can prepare the issue for depositions and trial.
Experts should be adaptable and
prepared to recalculate their values depending on what a judge or opposing
attorney asks. An expert who takes the position that "nothing will change, my
valuation stands as it is" loses credibility.
To further enhance
credibility, your expert's opinion must be offered from a position of
independence and free of bias and advocacy.
Intellectual honesty is undermined if the
"independent" valuation expert is seated at the attorney table or passing notes
to the attorney during opposing witnesses' testimony. While it is permissible
for your expert to offer guidance regarding what questions to ask on
cross-examination, that practice can blur the line between independence and
advocacy. The same caution applies when an attorney comments on drafts or
otherwise assists in developing an expert's opinion. Allow your expert to be credible, ethical and
Rule 26 of the Federal Rules
of Civil Procedure limits expert evidence to the content that is actually
written or displayed in the report. Therefore, everything to which your expert
testifies must be in his report. ■