In a dynamic business environment, a company’s directors and officers keep it robust and relevant by pushing ahead despite various obstacles. However, in doing so, the directors and officers of any organization face many environmental, economic, technological, and institutional challenges that pose different levels of risks for both the company and themselves.
Some of the risks a company’s decision-makers might face include:
The landscape in which directors and officers exercise their decision-making powers is often volatile. This exposes them to the risk of their actions backfiring or falling flat. Navigating through political change, stock market highs, and lows, and several other situations mean they can face backlashes as well as severe penalties and charges for not acting appropriately.
Mergers and acquisitions
Mergers and acquisitions (M&A) are significant events for a company. Senior officers play a major role in evaluating all M&A-related aspects and in voting for any such activity or change. However, this exposes them to the risk of litigation once such a decision is taken. Post-M&A litigation can be damaging both to the company and to the person standing and financial value of directors and officers themselves.
Breach of fiduciary duty
A constant risk looming large for directors and officers is that of derivative lawsuit claims. Such claims are usually based on issues like breach of fiduciary duty. Some such lawsuits are trivial and thus not very harmful for the individual. But others can leave the individual in dire straits legally and financially.
Cryptocurrency is now popularly used in executing financial transactions and creating wealth. Although the technology is considered remarkable, its use is governed by serious regulations because of the high risk involved. It also exposes a company’s decision-makers to the risk of severe claims in case of fraud or default.
Since directors and officers have access to sensitive information, any data breach or fraud can bring huge penalties their way. This is a common risk that most senior personnel in large companies face. Such a case affects not only the concerned person’s reputation but can also cause substantial financial losses.
After the #MeToo movement, many top-level officers feel there’s a high risk to their reputation from such cases. One case of alleged workplace harassment or wrongful employment practice can tarnish an individual’s professional reputation. A court may eventually find the individual in question innocent. However, the legal process and press coverage can affect their professional lives.
Guard against such risks with a D&O policy
Given the many risks that directors and officers face, companies are developing appropriate risk-management systems. These include the increased use of IT security measures, breach response measures, and other steps.
And an effective tool in any such risk-management arsenal is directors and officers (D&O) liability insurance. This is a comprehensive policy. It covers lawsuits that might arise from dissatisfied employees, customers, vendors, shareholders, and even the general public. Moreover, D&O liability insurance covers litigation that may arise due to wrongful acts on the part of another company, where the insured individual is serving as a nominee director. The policy also has a Side A cover, that promises to indemnify the individual in case the company cannot do so. Hence, it is very important to secure your company’s most critical assets with D&O liability insurance.