ESTIMATING DAMAGES TO AN ENTERPRISE STEMMING FROM DEFAMATION
Financial analysts routinely estimate enterprise value, drawing from a number of well-known valuation approaches based on assets, revenues, net income, discounted future flow, ratios and rules of thumb, or comparative transactions, often in combination.
This exercise of enterprise valuation becomes more complex, however, when the analyst must also assess the negative value introduced by defamation. The reputation of a business and its value are so thoroughly interwoven that defamation can literally drive a business to bankruptcy in a short period of time. How, then, to assess such damages? This article describes key challenges and introduces an instructive scenario.
Distinguishing the individual from the business
In many defamation cases, defamatory statements target an individual, such as the owner, founder or chief executive. This harm occurs at three levels, in three rings, as noted by Bill Choslovsky and Sameer Somal in their recent Midwestern Law Journal article.
Defamed persons have close friends and family that may not be affected by the defamation, but neighbours and coworkers in the second ring may be affected, as will the outer ring of the general public. Both the second and third rings of damage to the individual can spread to his or her business.
Customers may withdraw, partners may hesitate to collaborate, employees may lose confidence and lenders may tighten terms. If the business serves remote customers, damage in the third ring can also apply. The individual’s reputation acts as a proxy for the firm’s trustworthiness, especially in closely held or solely owned enterprises where the leader’s identity and the company’s image are tightly intertwined.
Jan-Mar 2026 Issue
Blue Ocean Global Technology
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