What should CFOs know about legal finance?
Liz Bigham: Jordan, to start us off, could you speak to what is on CFO's minds right now?
Jordan Licht: When I think about what a CFO is focused on, there's the bread and butter or daily business of accounting, FP and treasury, but that's actually not what CFOs are focused on on a daily basis. That's table stakes. What CFOs need to be focused on is how do they partner with the rest of the business to focus on growth initiatives, strategy initiatives, investing in the future and making sure that they're placing their respective company in the right position to compete in the years to come.
LB: Moving to the world that Burford works in. When businesses pursue high value claims that might take years to resolve there are a number of factors that the businesses have to consider. What are the factors that matter most to A CFO?
JL: Ultimately, when an individual business is looking to pursue their rights associated with a litigation activity, the CFO needs to be considering obviously some of the table stakes type elements of what's this going to cost, what's the risk associated with it, what's the probability, what's the duration? What are the different outcomes? But the most interesting of all of those considerations is likely that this is not the core competency of the company at hand.
When I think about whether it's a public company or a private company, there's always a shareholder or an owner. The investment in that business and the day-to-day investment is around how do I create, or how do we create a sustainable operating business that can compete in the future, not necessarily how do we create and invest in a sustainable operating business that has a bunch of litigation. And so I think the focus needs to be on what are the elements and the risks associated with it? And how do any of those factor in to what the mission is of the operating company?
LB: So you spoke about duration risk. Could you expand a bit on how important duration risk is from a CFO's perspective?
JL: When you think about duration and what that means, especially with respect to litigation, there's two elements associated with that. One is trying to understand the duration of costs, so how many years worth of expenses may be occurring, but then more importantly, while the cost may be somewhat fixed, when is the return? When is that outcome going to manifest itself? So spending $7 or $10 today for a return next year has a very different set of dynamics with spending the same amount of money and then receiving proceeds several years from now. Now I say receiving proceeds as if all litigation is successful, but sitting in the CFO seat, I don't know that that's clear. All I do know that's clear is that you're spending money today.
LB: Shifting to what Burford does for our clients, could you talk about from a CFO's point of view, the advantages of using legal finance?
JL: When you think about all the different factors that go into the decision process to choose whether or not to partner with us with respect to financing litigation, I think there are a couple of key ones that like bubble to the top.
First and foremost, just expenses out the door. Is this the best use of resources for an operating company to put to work? Number two is risk and reward. Is this where a company should be actually looking to manifest its return on investment? Is this the risk associated with investing in the litigation asset appropriate versus building a new factory or investing in R&D or new technology or hiring incremental people? And then finally, I think it comes down to just actually, is this the domain expertise for a company? Yes, the underlying element of the litigation may be pertinent to what the company is associated with, but ultimately managing and executing of these cases is not the day-to-day directive of the CFO, the General Counsel or the board.
How can we work to partner with you? Well, look, the simple answer is we'll walk you through and spend the time to go deep and understand your particular assets and how those can be monetized for you, or how we can spend our time and efforts to support your true initiatives.
