Management liability: Conversation starters
As companies face increasing regulation around corporate behaviour and reporting, directors and officers are under more scrutiny than ever before. Therefore, it’s important that your clients understand the basic risks faced by their businesses.
To help spark these conversations, we’ve put together a selection of questions you can ask, along with key talking points for each.
Did you know that your personal assets may be at risk?
All companies, irrespective of size, have exposure to allegations of wrongdoing made against directors or officers who are carrying out their management duties. These allegations may need to be investigated or defended even if there is no merit to the claim.
If a company is unable or unwilling to indemnify a director or officer due to legal or financial restrictions, and there is no D&O policy in place, the director or officer may need to settle the costs using their own personal funds. In some instances, directors and officers have been forced to sell their personal assets to meet the cost of litigation.
Do you have protection against employment practices claims?
Small companies may not think that they are exposed to employment-related issues, especially if they outsource their human resource (HR) function. However, while an outsourced HR company will assist with the creation of policies, no company should put faith in a third-party’s ability to settle a claim. If a disgruntled employee brings a claim, an insurance policy which includes employment practices liability can save you significant amounts of defence and settlement costs.
Are you looking to expand your board of directors?
If a company is looking to recruit a new director to bring new skills or experience to the board, any prospective candidate would be hesitant if their personal assets are potentially at risk. A D&O policy can provide peace of mind, allowing management to focus on their role and remove the potential barrier to hiring.
Are you considering raising external funding?
As start-ups in the technology or life science sectors look to expand or invest in their business, they may consider raising external funding. Often, an investor - either individual or institutional - may wish to have a seat or representation on the board of directors. Therefore, it is not uncommon for a funding contract to specifically require D&O insurance to be purchased within a set timeframe to reduce the investor’s exposure to potential lawsuits.
Are you worried about the cost of management liability insurance?
The cost of management liability policies may an area of concern for directors or officers. However, for small to mid-market private companies and not-for-profit organisations, the product is fairly standardized and relatively inexpensive.