As the legislators close in, internal misconduct by directors is under greater scrutiny. The D&O claims defender’s job just got tougher
Warren Buffett’s quote about finding out who is swimming naked when the tide goes out has never been more apt than in our current recessionary times.
Recently unearthed fraud cases, combined with events in the financial sector over the past two years, have encouraged a global move towards legislative and regulatory reform. Increased co-operation between agencies such as the Department of Justice and Securities and Exchange Commission in the USA and the UK’s Serious Fraud Office should mean that a tighter global regime will be developed to combat financial crime. Legislators are seeking to reform financial and corporate governance legislation, with new laws requiring greater disclosure, permitting collective actions and a lessening of burdens of proof for certain claims. Measures providing greater shareholder and regulatory powers are also coming to the forefront.
It is not just the financial sector that is under increased scrutiny. The Office of Fair Trading has been very busy with investigations into antitrust and anticompetitive practices. There is a lot of emphasis on whether internal reporting requirements have been met and whether there has been internal misconduct by directors.
Therefore, company directors are increasingly keen to look at their internal management processes and their directors’ and officers’, personal injury and financial crime insurance arrangements to ensure that they have support in the event of an investigation or prosecution.
D&O, PI and financial crime claims can be very complex and costly. Those of us involved day to day with these claims need to be aware of the evolving business and regulatory environment, as well as applying the best techniques for supporting customers and mitigating their costs. There are a number of things to bear in mind.
• Claims can be lengthy – years in some cases. This can be very stressful and expensive for people who are the targets of the proceedings.
• Being a good director is not the same as being a good defendant in a management liability action. Although many directors are people who want to proactively shape and improve situations, they still need expert advice and guidance when facing difficult allegations.
• Claimants’ solicitors can take a scattergun approach, naming everyone from senior executives down. It can be a big shock to more junior managers and supervisors to be faced with such actions. It is important that subjects of the investigation receive effective support.
• Directors may not have the support of their employers. With D&O insurance in place, however, they need not be concerned about having resources to defend themselves.
Corporate customers need access to a claims department that is able to deal with the increasingly complex matters that directors and officers have to deal while under increasing scrutiny both from shareholders and ever-more aggressive regulators and investigators.
Steve Agutter is claims director at Chartis Insurance UK Ltd