Canadian Underwriter

Risks for directors and officers higher than ever, but often aren’t fully understood: report

April 24, 2013   by Canadian Underwriter

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The risk for directors and officers to be in hot water is especially high right now, as regulators and other authorities are increasingly scrutinizing those at the top of the ladder, according to a new report from Willis.


In a survey of 120 individuals from both the public and private sector, more than one in four said they had experienced a claim or investigation involving a director with their company, notes the report, conducted by Willis and international law firm Allen & Overy.

“Directors and high-ranking officers in public and privately-held corporations are under scrutiny like never before as they conduct business in an increasingly regulated and complex global business environment,” Andrew Barton, counsel at Allen & Overy noted in a statement on the report.

“As regulatory authorities have responded to public and shareholder pressure in the wake of the credit crisis with more rules, heightened vigilance and tougher enforcement powers, corporate leaders find themselves exposed to even greater risks on a daily basis in going about their roles,” he added.

In the poll, 89% of respondents said regulatory and other investigations were a risk for directors and officers, making it the top ranked threat. That was followed by criminal and regulatory fines and penalties, anti-corruption legislation (58%), securities and/or shareholder claims (51%), and the risk of being sued abroad (50%).

However, more than a third of the survey respondents weren’t aware of the personal exposure of directors to antitrust enforcement, Willis noted. Three of 10 respondents also didn’t know that directors have personal exposure to sanctions penalties, and about four of 10 non-executive directors surveyed weren’t aware of sanctions risks, Willis said.

In terms of D&O insurance, having clear and easy to follow policy terms was the most important to survey participants, with 64.2% ranking it as a top issue.

Respondents also said that the cost of advice in the early stages of an investigation should be covered, and that their policies should coordinate with their organization’s indemnification obligations.  

“Against the current backdrop, the importance of directors’ and officers’ (D&O) liability insurance, and corporate director indemnification, has moved up the agenda,” Francis Kean, executive director in Willis’s Financial and Executive Risks practice noted in a statement.

“These mechanisms allow businesses to offer their leaders a degree of protection and assistance should they find themselves embroiled in civil, regulatory or criminal actions, and thereby help allay the fears of board members so that they can focus on performing their key functions.”

The report also recommends that directors and officers ask questions and seek external advice if they don’t understand a specialist topic.

“There were countless examples of directors of financial institutions telling Congressional hearings in the U.S. that they didn’t understand the collateralised debt obligation products that their banks were trading,” the report notes, “but ignorance is not an execute that will find favour with regulators.”