Guide to Directors’ Duties and Liabilities
Regulatory and political scrutiny of boards has led to an increase in the risks and potential liabilities faced by individual directors. The impact of this new environment is also felt in the rising number of directors’ and officers’ (D&O) insurance claims. The Report helps board members understand the extent of their liabilities in this complex and increasingly challenging new world.
Since the financial crisis, the risk oversight responsibilities of directors and supervisory board members have been increasing. Companies operate in a global world and are exposed to a large number of different risks, while board members have to adapt quicker to a continuously changing landscape. Furthermore, with more complex supply chains and with companies operating in many countries, board members have to cope with different legal frameworks and different cultures that can impact their governance.
In parallel, companies and more especially board members are subject to increased scrutiny by regulators and society at large. The role of social media is also more evident than in the past.
It is against this background that the European Confederation of Directors’ Associations (ecoDa), together with AIG, has developed this Guide analysing the risks facing directors and how D&O insurance can offer legal and financial protection. The Guide covers risks to individual board members in particular, though risks to the company are also included.
The purpose of this Guide is certainly not to discourage directors from joining boards but to help them understand the true nature of their liabilities. Through different case studies, the Guide highlights specific issues in a number of countries – for example, the way directors can be prosecuted varies from one country to another.
This Guide provides important principles for individual board members and is also an invitation to directors to learn how to exercise their skills with professionalism and to be loyal to their companies. Therefore, at the very least, the Guide can serve as a tool to lower the risks the individual board members are exposed to, and at best as a tool to help avoid litigation.