Many of the people believed and advocated that directors and officers liability were ideal only for larger enterprise but, today, small and medium businesses have started including this policy in its risk management portfolio. Every business, whether it is big or small makes mistakes and needs a quick reliable recovering plan. The Directors and officers liability policy provide the rapid recovery plan for the company’s top executives. As a director, you’re ultimately responsible for the decision made and it is important for small organizations to provide a protective shield against lawsuits.

If you are operating the small or medium business and have no plans to avail directors and officers liability insurance then look at the following advantages of having this policy:

1. SMEs are easy targets for lawsuits
SMEs do not invest much in hiring special in-house legal representatives as they run on a tight budget, so it becomes crucial for every SME to buy this policy in order to be prepared for any lawsuits arising against management or Directors. D&O liability policy covers executives, managers and board of directors of your company against negligence claims, error & omission claims. Any employee, client or shareholder may sue you against wrongful acts like misuse of the company’s fund or breach of contract etc and such cases put the severe strain because of hefty costs of litigation. The large organization gets itself recovered from such mishaps but being a small and medium enterprise, it is very difficult to regain your financial stability after incurring high expenses in litigation and court proceedings.

Read About: How directors and officers liability help companies in distressed times

2. Helps in attracting good Talent
Every business strives to hire good talent and if an organization has D&O liability policy it becomes much easy to acquire knowledgeable talent from the marketplace. Successful and knowledgeable people feel confident and interested in an SME if they will be able to make the decision without facing a personal lawsuit. This policy safeguards the personal assets of the officers and directors, this policy instils strong confidence among would-be members.

3. Helps in getting investors
It is a growing need for investors that every business should have a directors and officers liability policy, no matter if it is small or large. It decreases the magnitude of risk for investors. The D&O policy helps in raising capital by crowdfunding or venture capital. Investors ask for this protection if they seem to be interested in your company. Hence in order to attract investments for your company, it is important to buy this policy.

4. Financial protection against negligence
Directors and Officers policy save an SME from reputational crisis and lawsuits. It offers a financial cushion by covering the defence cost. As a director or manager, making a decision for the betterment of the organization might backfire and make you personally liable for the loss. In such cases, D&O policy is the last resort for you to approach and for an SME if you do not have this policy, such instance can end your career or bring doomsday for your organization because generally, claims are costly. It is always advisable to maintain an optimum level of D&O cover to face mishaps like unrealistic promises to investors, negligence, error or omission etc.

5. Improves your credibility in the market
Having a D&O policy enhances your organization goodwill and brand value as your organization seems to be an accountable entity to safeguard the interest of its board of directors. It is a growing need to buy this policy in order to deal with contingencies more confidently. Investors, clients, and your employees play a key role in your organization and directors policy has a very high aspirational value to all of them in terms of financial stability. Having directors and officers insurance policy is a beneficial proposition in cases of mergers and acquisition as it increases the credibility of the firm even at the time of contingencies.

Also Read: Who is covered under Directors and Officers (D&O) Liability Insurance?

Case Study:

XYZ textile limited is a small and medium enterprise. This firm faces a lawsuit against breach of duty. One of its clients sued them for not delivering the order on time. Being an SME, it put a great strain on the organization to fight legal court proceedings. The hefty cost of litigation is a huge financial burden on the firm. It is also affecting the reputation of the firm negatively. The firm has not availed D&O policy and this made them vulnerable as there is no recovery plan to regain their financial stability. The firm ignored the importance of D&O policy due to which they have to face such a financial crisis.

Having a D&O policy is a smart practice for SMEs and it should not be ignored. It offers solutions that cater to your business needs like attracting market talent and prepare you to scale the needs of tomorrow to fight against mishaps. Every business, whether it is small or big should buy this policy even a start-up should also give it a thought because of D&O policy’s beneficial value.

Keep Reading: Why should start-up consider directors and officers liability insurance