Directors & Officers
In today’s world, stakeholders and the public are aware of their rights and are pro-active about seeking redress when they feel that they have been poorly treated or suffered an unnecessary financial loss. With this in mind, directors and officers - whether corporate or not-for-profit - need to protect themselves by ensuring that they are aware of their obligations and that they are properly insured.
Risk Management for directors & officers
As always the first step is risk management. Most directors and officers are aware that their fundamental duties include acting at all times with:
- Care, diligence, and skill
- Honesty, loyalty and good faith
However, ensuring that you have acted in good faith doesn’t necessarily protect directors and officers from being sued - there are still legal costs at stake, even if negligence isn’t found. Often directors and officers assume that they will have indemnity from their corporation or organization but that isn’t always the case – if the organization is insolvent, or not legally able to provide indemnity, or in cases of fraud or malicious acts, then the company’s policy will not provide protection.
Are your directors and officers vulnerable?
Allegations that are most commonly made and which have to be defended by directors include:
- Acting beyond the scope of their authority
- Giving wrong or unprofessional advice
- Breach of fiduciary duties
- Authorizing excessive company spending
- Failure to supervise subordinates or company affairs properly
- Making unauthorized company borrowing
Some situations are more likely to put the directors and officers at risk
- Acquisitions or divestitures
- Foreign investment (especially in the USA)
- Public offerings
- Management buy-outs
- Reduced dividends
- Waste or mismanagement of corporate assets
- Employee dismissal
- Boardroom dispute
- Breach of contract
- Liquidation of the company
- Change in ownership of the company's share capital
Whether public or private, profit or non-profit, no one is safe. A solid directors & officers insurance policy will cover the directors and officers of an organization, as well the corporation or not-for-profit organization if they are insured as well. Talk to Reliance Insurance - we will craft an insurance policy to give you and your organization coverage and peace of mind.