Almost 40% of private companies anticipate d&o-based suit in 2004

Nearly two in every five privately-held U.S. companies anticipates lawsuits aimed at their directors and officers from shareholders, customers or vendors this year, notes a new study sponsored by New Jersey-based Chubb Group.
The survey of private company risks, conducted by Impulse Research Corp., found that 37% of executives expect lawsuits aimed at their company from customers, 30% from vendors and 21% from shareholders. Alarmingly, 18% report their directors and officers have been the target of lawsuits from customers already in the past few years. Additionally, 7% have faced vendor lawsuits, and 6% were targeted by shareholders.
“The Chubb “Private Company Risk Survey” supports what we’ve been seeing as an insurer over the last few years: private companies – large and small – and their directors and officers are not immune from lawsuits from customers, investors and other parties,” says Lisa McGee, a vice president of Chubb & Son. “If anything, the problem appears to be worsening.”
Private companies also saw themselves as being affected by the Sarbanes-Oxley Act on accounting and disclosure – 30% say they will feet its impact, despite the legislation being aimed at public companies. However, the majority (54%) of executives say they remain uncertain just how Sarbanes-Oxley will impact their company.
There is some movement afoot by private companies to assess their risk of a directors and officers or related exposure – 36% say they will be conducting a review of this in 2004 – and 36% of the surveyed companies say they do have a published corporate governance program in place already.
“Although many private companies are still not thinking about ways to reduce their exposure, it was refreshing to see that so many others are taking steps to control their losses,” McGee says.