August 21, 2007 by Canadian Underwriter
New developments in extra-territorial jurisdiction, stock options backdating and claims against European companies are becoming major areas of concern for company directors, according to a recent publication of Willis Group Holdings.
The Willis Boardroom Guide 2007 is published by the directors and officers (D&O) team of Willis financial executive and professional risks (FINEX) division, in conjunction with White Page Limited.
It identifies key issues that affect company directors operating in 14 jurisdictions, including the U.S.A., Europe and the Peoples Republic of China.
In terms of extra-territorial jurisdiction, the Willis Boardroom Guide finds that there is an increasing appetite for U.S. law firms to get involved in litigation against non-U.S. companies, with some of the leading firms in the U.S. setting up shop overseas to explore the potential for actions against them, Willis said in a press release announcing publication of the guide. This could create a new source of very complicated claims for directors of multinational companies.
The accounting treatment of stock options is also a source of concern for directors and officers, says Willis. If a company backdates its stock options, but fails properly to disclose this to shareholders and regulators, the directors could face claims that they have made misleading statements in their annual financial reports to investors.
When it comes to D&O claims, Willis report finds, although U.S. class action litigation fell by more than 40% between 2005 and 2006, the number of claims against European companies has remained at a relatively constant level for the last three to four years.
Recent scandals at European companies have led to sweeping reforms of European corporate governance and audit procedures, and a more aggressive class of shareholders has emerged, Willis says in its release. This, coupled with the aforementioned appetite for U.S. law firms to get involved in litigation against non-U.S. companies, could give rise to heightened exposures for directors of companies outside the already well-established threats of U.S. securities law.”